Bitcoin Is Hitting Record Highs. Why It’s Not Too Late To Dig For Digital Gold

Investors intrigued by bitcoin’s surge but reluctant to buy it have some options for how to bet on the evolution of banking and payments. But they’re not cheap. Bitcoin Is Hitting Record Highs. Why It’s Not Too Late To Dig For Digital Gold

Digital currencies have the attention of the mainstream. Even America’s oldest bank can’t ignore them.

Bank of New York Mellon, BK 0.33% founded in 1784 by Alexander Hamilton, announced last week it will help clients hold and transfer bitcoin and other cryptocurrencies. That followed an announcement from Tesla that the electric car maker purchased $1.5 billion worth of bitcoin.

The combined excitement generated by two well-known companies likely played a role as the price of bitcoin hit $50,000 for the first time.

Many investors may justifiably feel that buying bitcoin or other tokens directly as a way to tap into this momentum is too speculative or volatile. But it may be time for even the crypto-agnostic to start thinking about getting exposure to the emerging ecosystem around bitcoin and other digital assets—not necessarily for the value of those assets themselves, but how finance and banking might evolve because of them.

After all, many longtime crypto proponents are already looking well past bitcoin as digital gold toward other developments, such as the use of crypto in commerce, lending and payments.

The shape of this future is hazy: Bitcoin itself could be a major component, or it might be alternatives like so-called stablecoins pegged to dollars, or digital currencies issued directly by central banks. Mastercard said this month it plans to support some cryptocurrencies, particularly stablecoins, directly on its network.

For shares of big global institutions like Bank of New York or Mastercard, it could still be some time before crypto can move the needle more than macro factors like interest rates or consumer spending. So investors for now may be looking for more concentrated or direct exposures.

There is a growing roster of listed companies that provide “pick and shovel” services across cryptocurrency and digital assets—though they aren’t cheap.

Some banks specialize in holding dollars attached to crypto businesses, like an exchange that facilitates buying and selling into and out of cryptocurrencies. Their shares have been soaring. Silvergate Capital, a La Jolla, Calif.-based bank that has for several years served crypto firms as a core part of its business, reported that its digital currency deposits grew 138% from the third quarter to year-end, to $5 billion.

Its shares are up more than 100% so far in 2021, and roughly 10-fold over the past year. Silvergate operates a payment network linking these firms, which it believes is a moat as other banks come into the space, and it aims to grow other services such as crypto-collateralized lending.

Within the S&P 1500 banking industry group, the best performer over the past month is Signature Bank. The New York bank is a big player in commercial real estate but it also has a fast-growing digital-asset banking business. Those deposits grew by $8 billion last year to $10 billion. Its shares are up about 55% this year, triple the gain for the KBW Nasdaq Regional Banking index.

Then there are businesses that hold, exchange and transfer crypto on behalf of institutions or consumers. For consumers there is what is known as a “wallet,” an account where they can buy, sell, move or pay with a digital asset.

Most of these firms are still private, and some are highly specialized for crypto experts. But a couple of prominent firms are in the process of listing.

Coinbase Global has over 40 million users, and its business includes a consumer wallet, one of the largest crypto exchanges and custody and prime brokerage. It is rolling out a Visa rewards debit card linked to crypto accounts. The company said in January it plans to go public through a direct listing.

Bakkt was started by Intercontinental Exchange with bitcoin custody and futures trading, but has since expanded to consumer wallet and merchant products. In January it said it would go public via a merger with a special-purpose acquisition company. The SPAC’s shares are up more than 80% since the news, implying a roughly $5 billion market value for Bakkt.

Even if bitcoin itself isn’t a common way to pay, perhaps because people who hold it see it as a long-term asset, wallet providers bet that digital assets generally could become major payment methods. For example Bakkt aims to facilitate payments and transfers using all manner of digital stores of value, like videogame assets, airline miles or stocks.

Last year, PayPal Holdings introduced crypto buying and selling into its digital wallet, via a partnership with crypto-services provider Paxos. This year PayPal will begin allowing users to fund purchases via its payment buttons with crypto, as they might with a credit card.

To the merchant, it would look like any other payment. PayPal argues this kind of flexibility can make it a central hub however digital money evolves.

PayPal told investors last week it is looking at crypto services partly as a way to help it shape the role of cryptocurrencies in the future, including central bank digital currencies. PayPal shares are up more than 40% since it introduced its crypto service.

Beyond payments, crypto is often viewed as a gateway to digital finance. Payments and banking upstarts such as Square and Social Finance—which is going public via a SPAC—also offer crypto buying and selling. Likewise, Visa this month said that with digital-asset banking startup Anchorage it will begin offering a tool for traditional banks to offer crypto buying to their customers.

Analysts tend to look past the revenue from crypto buying-and-selling itself, which can be relatively small, and more at the potential this has to hook in younger users and earn their future loyalty in all things banking. “In digital banking, getting customers is the hard part.

The real power of crypto may be getting people to download the app,” said Lisa Ellis, analyst at MoffettNathanson. Notably, PayPal said that users who bought crypto subsequently opened their app, which has a bevy of features, twice as often.

As much as some investors in banking and finance might be skeptical of bitcoin’s rocket ride, they shouldn’t take their eyeballs off crypto.

Updated: 3-12-2021

Gold’s Status As Inflation Hedge ‘Somewhat Exaggerated,’ Says BlackRock Exec

BlackRock executive Russ Koesterich says gold is failing as an equity hedge amid massive outflows from bullion ETFs into assets like Bitcoin.

With the price of gold down more than 11% over the last six months, some investment managers are questioning its status as a hedge asset.

According to Bloomberg, Russ Koesterich, portfolio manager at BlackRock’s Global Allocation Fund, gold is currently failing to prove its effectiveness as a viable hedge against inflation.

Indeed, Koesterich countered the popular hedge asset narrative for gold, stating, “Gold’s ability to hedge against inflation has been somewhat exaggerated. While it is a reasonable store of value over the very long-term — think centuries — it is less reliable across most investment horizons.”

The current investment horizon appears to be one dominated by the fallout of the coronavirus pandemic and the various responses by governments by way of economic stimulus packages.

Inflation fears are currently palpable amid massive stimulus spending to trigger economic recovery.

Since setting a new all-time high of $2,100 per ounce back in the summer of 2020, gold has been on the decline and is currently trading above $1,700 as of the time of writing.

Gold’s price decline has also seen significant outflows from gold ETFs with some market analysts stating that investors are pivoting to Bitcoin (BTC). In November 2020, Chinese banks began suspending the creation of new precious metal trading accounts due to rising price volatility for the likes of gold.

In contrast to gold’s spot price performance, Bitcoin is up almost 90% year-to-date as the largest crypto by market capitalization continues on its positive price run since October 2020. As previously reported by Cointelegraph, senior Bloomberg strategist Mike McGlone has said BTC is “pushing aside” gold as a store of value asset.

Koesterich’s warnings about holding gold as a hedge in the current investment horizon come on the heels of somewhat positive comments by BlackRock about Bitcoin.

The world’s largest asset management company previously identified Bitcoin derivatives as a possible investment foray in filings with the United States Securities and Exchange Commission at the start of the year.

Back in November 2020, Rick Rieder, chief investment officer at BlackRock Financial Management stated that Bitcoin could displace gold to a large extent.

Updated: 3-22-2021

Bitcoin Is ‘More A Substitute For Gold Than The Dollar’ — Fed Chair Powell

Jerome Powell reiterates his opinion about Bitcoin as a gold substitute, but a sell-off accompanies his other criticisms.

While Bitcoin (BTC) is too volatile to be money and is “backed by nothing,” it could be a “substitute for gold,” said the chair of the United States Federal Reserve.

Speaking at an event hosted by the Bank for International Settlements, or BIS, on Monday, Jerome Powell delivered frank comments in response to a question on cryptocurrency.
Powell takes issue with Bitcoin’s backing

When asked whether he thought Bitcoin and other cryptocurrencies posed a threat to financial stability, Powell wheeled out familiar arguments that have long come from legacy finance figures.

“Crypto assets — we call them ‘crypto assets’ — they’re highly volatile — see Bitcoin — and therefore not really useful as a store of value, and they’re not backed by anything,” he said.

“They’re more of an asset for speculation, so they’re not particularly in use as a means of payment. It’s more a speculative asset. It’s essentially a substitute for gold rather than for the dollar.”

Powell’s words provide some of the most direct Fed opinions on Bitcoin to go public in recent times and build on a perspective offered in 2019. They also come weeks after incoming Treasury Secretary Janet Yellen made clear her misgivings about decentralized cryptocurrencies.

As with Yellen, Powell appeared to spark a burst of negative market sentiment, with BTC/USD dropping almost $1,000 following his response.

For all their disagreements, however, both Powell and Bitcoin’s biggest proponents thus agree on the cryptocurrency’s status as a new form of gold.

The verdict could hit home hard for gold bugs hostile to Bitcoin, notably Peter Schiff, who continues to claim that fate is on his side when it comes to generational stores of value.
Fiat has “public benefit in mind”

Together with BIS general manager Augustin Carstens and Jens Weidmann, president of the German Federal Bank, Powell also looked at stablecoins as they relate to the ongoing trend of central bank digital currencies, CBDCs.

Here, the talk was less unsual, with the speakers repeating known stances involving the separation of private stablecoins and bank-operated CBDCs.

“To the extent a stablecoin is backed by sovereign currencies of leading nations, that’s certainly an improvement over crypto assets, I would say,” Powell continued.

“But nonetheless, where’s the credibility come from? It comes from that sovereign currency that is the backstop.”

Fiat currencies, he said, are “issued with the benefit of the public in mind,” while emphasizing that stablecoins will not serve as the basis for the global financial system in the future.

Updated: 3-30-2021

Bitcoin Is Outshining Gold In The Battle Of The Safe Havens

Bitcoin is approaching all-time highs versus gold. The digital currency broke above $59,000 on Tuesday while gold languished below $1,700.

As the Bitcoin (BTC) price edges closer to $59,000, its value relative to gold is approaching new all-time highs, possibly hinting at the emergence of a new preferred store of value.

Measured against gold, Bitcoin’s price reached 34.94 ounces on Tuesday. The BTC-gold comparative peaked at 35.35 ounces on March 13 as Bitcoin surged past $61,000.

Bitcoin’s value relative to gold has more than doubled over the past three months and has grown nearly sevenfold since October 2020.

Gold futures, meanwhile, plunged below $1,700 a troy ounce Tuesday on the Comex division of the New York Mercantile Exchange. The price bottomed at $1,676.50, marking a new three-week low. Since peaking above $2,050 a troy ounce in August 2020, bullion has corrected nearly 18%.

2020 was a big year for gold, as the yellow metal set new all-time highs in every major currency before toppling $2,000 per U.S. dollar for the first time. Bullion ended the year with a gain of around 22%. Still, that paled in comparison with Bitcoin’s 265% yearly return.

With the recent $1.9 stimulus package fueling inflation fears, assets like gold and Bitcoin should, in theory, perform well as investors hedge their bets against the declining dollar. However, the recent rise in bond yields may have taken some of the shine away from gold.

Others, even some prominent analysts like Bloomberg’s Mke McGlone, believe gold is losing ground to Bitcoin in the battle of the safe-havens. Earlier this month, McGlone tweeted:

“Gold will always have a place in jewelry and coin collections, but most indicators point to an accelerating pace of Bitcoin replacing the metal as a store of value in investor portfolios.”

Digital #Gold Pushing Aside the Old Guard –
Gold will always have a place in jewelry and coin collections, but most indicators point to an accelerating pace of #Bitcoin replacing the metal as a store of value in investor portfolios. pic.twitter.com/RR0CCWmksF

— Mike McGlone (@mikemcglone11) March 8, 2021

Even JPMorgan, an organization long critical of Bitcoin, has claimed that the digital currency will consume a portion of gold’s market share. “The adoption of bitcoin by institutional investors has only begun, while for gold, its adoption by institutional investors is very advanced,” JPMorgan strategists led by Nikolas Panigirtzoglou said in a December 2020 report. “If this medium to longer-term thesis proves right, the price of gold would suffer from a structural headwind over the coming years.”

Bitcoin’s digital gold narrative continues to strengthen post-halving. The quadrennial deflationary event, which last occurred in May 2020, reduces the amount of new Bitcoin that enters circulation after each block is mined.

Fed’s Powell Says Bitcoin Is More Of A Substitute For Gold Than The Dollar

Work on central bank’s digital dollar continues but there is no rush, Fed chairman says.

Bitcoin is lacking key ingredients that would make it a useful currency. As a result, the crypto currency is essentially more of a substitute for gold than the dollar, Fed Chairman Jerome Powell said Monday.

“Crypto assets are highly volatile — see Bitcoin — and therefore not really useful as a store of value. They’re not backed by anything. They’re more of an asset for speculation,” Powell said, during a webinar sponsored by the Bank of International Settlements.

“It is essentially a substitute for gold rather than the dollar,” he added.

Stable coins are “an improvement” over crypto assets, but their credibility comes from being backed by a sovereign currency, he said.

“Stable coins may have a role to play with appropriate regulation, but that role will not be to form the basis of a new global monetary system,” he said.

“A global currency governed by the incentives of a private company is something that will deserve and will receive the highest level of regulatory expectations,” the Fed chairman said.

One day in the future, the Fed might develop a digital dollar, Powell said, but not until after a lot of careful review and acceptance by the American public and government.

It would be better for Congress to pass laws specifically authorizing the digital currency rather than for the Fed to use existing authority, he said.

Some economists argue that a digital dollar would have been useful in the recent efforts to stimulate the economy during the pandemic. Theoretically, digital dollars could instantaneously be sent out to Americans.

As he has in the past, Powell stressed the Fed is in “go-slow” mode about such ground-breaking technology.

While work is going on exploring the ramifications of a digital dollar, Powell stressed that no decision is looming.

“Because we’re the world’s principle reserve currency, we don’t need to rush this project — we don’t to be first to market,” Powell said.

One concern Powell mentioned is that Americans would want to hold digital dollars during any crisis, leading to potential bank runs out of paper currency.

“There is just a tremendous amount of thinking going on, on how we can capture the potential benefits while also managing those potential risks,” Powell said.

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Bitcoin Is Hitting Record Highs. Why It’s Not Too Late To Dig For Digital Gold

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