A shiny Bitcoin

While many investors may not currently have a mandate to own digital currencies, there is increased focus on the sector- and particularly bitcoin – as the prospect of the unprecedented money printing that it was originally designed to replace becomes entrenched in the global economy.  As Pantera Capital’s Dan Pantera notes, that tsunami of money will have a large impact on many things, and it seems inevitable that it will push up the price things like bitcoin, of which there is a fixed quantity. After all, he says, if there are trillions more paper dollars, the law of supply and demand implies much more paper money to buy the same amount of cryptocurrency. Pantera has been beating the drum about bitcoin benefitting from continued monetary expansion, and he says that thesis has played out well, with bitcoin is up 34% this year relative to most other asset classes being down. Indeed, he believes markets are at an inflection point where excess liquidity pouring into the system by the Federal Reserve will find its way to fixed-supply assets like bitcoin and other cryptocurrencies, some of which are surging even more than bitcoin.

The comments come as observers assess the performance of digital currencies like bitcoin more generally amid the turmoil sparked by the coronavirus pandemic. JP Morgan, (Cryptocurrency takes its first stress test (June 11)), notes the past few months saw the first real stress test for the cryptocurrency market, and the results were mostly positive, pointing to its potential longevity as an asset class. Bitcoin, says the bank, rarely deviated from the cost of production and outperformed other more traditional asset classes on a volatility-adjusted basis. Somewhat surprisingly, adds JP Morgan, liquidity on major bitcoin exchanges was more resilient in March than traditional macro asset classes like FX, Treasuries, gold and equities.