We have talked about the cryptocurrency market quite a bit recently in the ETF Think Tank. With the sharp increase in volatility over the past couple of weeks, we talked to Raoul Pal, the CEO & co-founder of Real Vision and Global Macro Investor, to get his take on where the crypto market is, where it’s going and what the potential is of this new technology.
We started with a question that we’ve posed to many of our guests who are involved in the crypto space - is Bitcoin a store of value, is it an investment or even something else? Long-term, he says, he considers Bitcoin a store of value, but it’s got a lot of short-term volatility that can mask that. In reality, he thinks of it as a call option on the future as well. If you pull back and look at the larger view, Bitcoin has done nothing but grow in value, it’s offset the Federal Reserve balance sheet, it’s outpaced inflation. In the short-term, its value will be all over the place, but longer-term, these gyrations tend to be more smoothed out.
To say that Pal is a cryptocurrency bull would be an understatement. Outside of Bitcoin as an investment, he believes that crypto and the blockchain will be the greatest revolution in business models we’ve seen, not just in the financial markets. He says that eventually the whole of your business is going to be tokenized and, in many cases, it is already happening. He notes that in its early stages, there was 63% annual growth in network adoption for the internet. The crypto space is growing at around 113% a year. It is being adopted at twice the rate of the internet, faster than any technology in human history.
Pal goes on to emphasize that there’s a lot of uncertainty related to cryptocurrencies and nobody knows how this story is going to play out. With Bitcoin, no one knows what happens because no one controls it. If the goal is network adoption, we do not know how that will happen. It will be volatile and have boom/bust cycles, but it will be OK as long as the trajectory is up.
The U.S. Treasury this past week called for stricter oversight of the cryptocurrency markets by requiring tax reporting on certain transactions. Pal says that the government’s interest in taxing crypto transactions was always seen as likely, but it’s questionable how enforceable it is. He notes that the government has no ability to regulate cryptocurrency right now and it has no control of the market. Since it is not a security trading on an exchange, the government needs time to wrap its heads around that. It will try to slow adoption so it can figure it out.
Last week’s Get Think Tanked guest Mark Yusko jumped into the conversation and offered a similar sentiment. He said all the government is trying to do is slow it down so they can play catch up. It is a big contributing factor to why a Bitcoin ETF hasn’t been approved yet. With Canada already approving a Bitcoin ETF and the likes of BlackRock and JPMorgan getting on board with crypto, that helps the case, but there were mixed opinions on when a Bitcoin ETF might finally get approved. Guesses ranged from later this year to a couple years out.
Pal reiterated his notion that cryptocurrency is an exponential technological change that will revolutionize the way the world works and network development, including data, internet, 5G and architecture, will combine to form everything. He says, “if you’re asking if you should buy Bitcoin, you’re already way behind.”
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