Tesla CEO Elon Musk is talking more about the automaker’s bitcoin purchase. In response to a comment from Binance CEO Changpeng Zhao, he called Tesla‘s $1.5 billion bitcoin purchase “adventurous enough for an S&P500 company.”
Tesla CEO defends bitcoin purchase
Zhao told Bloomberg in an interview that he was surprised that Musk was “so gung-ho on Dogecoin.” Binance is the biggest cryptocurrency exchange in the world by volume, and it recently launched Dogecoin futures. However, Zhao also pointed out that Tesla purchased $1.5 billion worth of bitcoin rather than Dogecoin.
In response, Musk tweeted that Tesla’s bitcoin purchase “is not directly reflective” of his opinion. He also said owning bitcoin is “simply a less dumb form of liquidity than cash” and is “adventurous enough for an S&P 500 company.”
The Tesla CEO also said that he isn’t an investor and doesn’t even own any publicly traded stock aside from Tesla. He added that “when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.”
“Bitcoin is almost as bs as fiat money,” Musk tweeted. “The key word is ‘almost.'”
Bitcoin price hits a new record
Following Musk’s tweet, the bitcoin price soared above $52,000 to a new record high. Bloomberg notes that the Tesla CEO’s remarks highlight one of the markets’ biggest problems right now. With governments pumping so much cash into the financial system due to the pandemic, investors are getting concerned about inflation and looking for other places to invest. This week alone, the bitcoin price is up by approximately 10%.
Tesla is part of the Entrepreneur Index, which tracks 60 of the largest companies that are still managed by their founders. Although Musk said Tesla’s bitcoin purchase doesn’t reflect his opinion, it seems clear that he had something to do with it. The automaker probably wouldn’t have bought the cryptocurrency if Musk hadn’t become a believer in it recently.
Some speculated that Tesla’s bitcoin purchase would lead other major companies to dive into the cryptocurrency, but Fortune reports that it isn’t happening. Gartner Finance conducted a survey earlier this month asking chief financial officers if they plan to buy bitcoin this year. Ninety-five percent of respondents said they didn’t intend to buy the cryptocurrency this year.
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Rick Rieder, BlackRock’s chief investment officer of global fixed income, told CNBC Wednesday that the investment giant has “started to dabble” in bitcoin—it’s the latest instance of a major financial player dipping its toes into digital assets.
Reider did not elaborate on BlackRock’s cryptocurrency strategy, but last month the investment giant filed documents with the Securities and Exchange Commission showing that it wants to include cash-settled Bitcoin futures as eligible investments for two of its funds.
BlackRock is the world’s largest asset manager—it managed some $8.7 trillion at the end of the fourth quarter.
Rieder told CNBC that he believes bitcoin’s recent rally is gaining momentum in part because of stronger regulations and better technology.
“My sense is the technology has evolved and the regulation has evolved to the point where a number of people find it should be part of the portfolio, so that’s what’s driving the price up,” he said.
$51,000. That’s the new record price bitcoin hit early on Wednesday morning. The most popular cryptocurrency started the year with prices around $30,000.
A spate of major corporations and financial institutions including MicroStrategy, BNY Mellon, and MasterCard,and PayPal have announced cryptocurrency initiatives this month, and there are reports that a $150 billion investment division at Morgan Stanley is considering investing in bitcoin. A portion of bitcoin’s recent gains are likely attributable to a surprise announcement from Tesla that the electric car maker had invested $1.5 billion into the cryptocurrency and has plans to start accepting it as payment.
Everyone loves Bitcoin. Personally, I can’t get enough of it. Though I just sold all of my XRP, as an aside, because I learned it was being delisted from Coinbase next week, Bitcoin, on the other hand, I am keeping for the moonshot.
Now that Grayscale has its Bitcoin Trust exchange-traded fund, the market cap for Bitcoin has hit a trillion dollars. It is approaching $40,000 per coin.
We know the role central banks are playing in BTC’s rise: debasement of currency via money printing. But what about China?
This is the most curious one for me, especially following what appears to be the self-exile of Jack Ma, the billionaire founder of Alibaba BABA+4.1%. Ma got into some trouble with Beijing regulators following the postponed listing of his fintech company Ant Financial, owners of AliPay, which is ubiquitous in China (you can also find it at your local CVS for some reason). Now there is talk of breaking up the Jack Ma tech empire, something akin to what anti-Big Tech advocates here in the U.S. have been asking be done of Google and Facebook.
One can almost see Chinese billionaires buying up Bitcoin, just in case Beijing comes for their wealth. Lord knows the dollar is in decline, and they probably already own a ton of stocks.
The Chinese currency, out of all the G10 currencies, has the strongest statistical correlation to BTC over the last 12 months, at around 84%. That means that as the RMB gets stronger against the dollar, so does Bitcoin, 84% of the time, says Vladimir Signorelli, head of Bretton Woods Research in Long Valley, New Jersey.
“When Bitcoin rises, the RMB is rising right along with it,” he says, adding that the euro has a 74% to 75% correlation with Bitcoin. The Russian ruble has a 25% correlation.
And then there is the Jack Ma effect. He’s the “canary in the coal mine” says Signorelli. “There could also be an internal dynamic in China keeping Bitcoin bullish,” he says. “You have Jack Ma’s total disappearance since October. Was it a canary in the coal mine for every millionaire and billionaire in China that you need to have a Plan B? There is a real risk of outright confiscation of your wealth. They see it clearly now.”
China’s crypto market has a massive user base. Singapore-based ZB.com Exchange is one of the top four exchanges that are popular among Chinese users. “Our in-app community is very active with Chinese users right now,” says Oman Chen, ZB’s CEO. The seven-year-old company runs digital asset trading platforms ZBM, ZBX and Bithi, cryptocurrency wallets like BitBank, and has a venture capital and research arm. “Most of these traders are very optimistic about the price of Bitcoin,” Chen says.
QCash, a stable coin trading pair supported on ZB.com, which is anchored to the Chinese yuan, is seeing strong trading volumes, according to ZB data. QC is the most liquid yuan-based stable coin.
China’s Digital Yuan Experiment
Last month, China gave its digital yuan a test drive in Suzhou. The experiment lasted roughly 10 days, but stands as a testament to China’s interest in crypto beyond the Bitcoin phenomenon.
Xinhua newswire reported on one resident surnamed Lu who had bought some snacks at a store in the Tianhong Shopping Mall using digital yuan. She transferred 66.6 yuan (about $10.21) from her digital wallet to the vendor’s account with no need for a cell tower connection.
Lu was one of the 100,000 residents of Suzhou who were given 200 digital yuan in the pilot program and could spend it at designated brick-and-mortar stores as well as online at JD.com between Dec. 12 to 27. Noted: not Alibaba.
This doesn’t mean the Chinese government loves Bitcoin, of course. Just that its population is more accustomed to the concept of cryptocurrency than the average American. Go ahead, ask your dad if he knows what Bitcoin is.
“The Chinese government considers Bitcoin a commodity, not a currency,” says Aries Wanlin Wang, a Chinese cryptocurrency investor.
The digital RMB (DCEP) program in Suzhou has adopted some blockchain functionalities but it is not the fully decentralized kind that true Bitcoin lovers want.
“The Chinese government wants to promote the digital yuan before anyone else,” says Wang. “They see the potential of a new payment and clearance system in the digital currency era. It may substitute the current Swift system,” he says, which tracks interbank transactions and is led by the U.S.
Crypto For Poor Countries
Last month, Venezuela’s government said it was giving up on its currency and would switch slowly to a digital system. Their Bolivar is worth less than seashells found on Margarita Island so it makes sense.
Argentina should be next. All of this will drive continued enthusiasm for Bitcoin, no matter the price. At the start of 2020, Ripio, one of Argentina’s largest crypto exchanges, had around 400,000 users and then ended the year with over a million.
Argentina’s tight control over dollars (no one wants pesos there), coupled with a new 35% tax, plus limits as to how many dollars you can buy (just $200), means the Argentines have discovered Bitcoin in a big way, too.
China’s currency, unlike those two basket case currencies of South America, is strong and getting stronger. Moreover, its central bank has been moving on a digital form of its currency for at least three years. They lead on this within the big and medium-sized emerging markets. Indeed, the only country ever talking about Bitcoin is Venezuela, run by the mightily corrupt Socialists United party.
“Even though Beijing has a strong resistance to cryptocurrencies, namely Bitcoin, they have taken the part of blockchain technology that is beneficial to their country’s development,” says Chen from Singapore.
“The central bank’s digital currency can not only give the country a higher level of control over the fiat currency but also snatch back some Chinese users from third-party digital payment platforms such as Alipay and WeChat,” Chen says. Since central bank digital currency is issued at the national level, like fiat currencies, the state endorsement is more powerful to skeptics and it accelerates demonetization in favor of crypto.
Bitcoin, in China at the moment, is rising with the fortunes of a stronger yuan and the digital yuan experiments.
Rich Chinese nationals may be thinking, ‘you know what, I rather have something that is loaded and convertible and beyond the reach of Beijing and perhaps the reach of the PBoC’ — that’s the central bank of China.
In this way, they don’t have to worry about currency devaluation and Bitcoin becomes a tax hedge. The top income tax rate in China is around 45%.
People might not remember, but this time last year gold was at $1515 an ounce; it’s now around $1850. The dollar on a gold basis has lost 20% or more of its value, notes Signorelli, searching for reasons why Bitcoin has doubled in less than four weeks.
“If you put your currency and inflation hedges into BTC instead of gold, man…you’re doing fantastic,” Signorelli says. “My suspicion is that as Chinese wealth increases, it is going to be increasingly difficult for Beijing to prevent their nationals from seeking ways to preserve their capital outside of the RMB. If they can’t buy U.S. real estate or stocks, and U.S. and European bonds pay little, they’ll take some more risk with Bitcoin, I think.”
I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.
After a period of time where it seemed like cryptocurrencies and all financial products with a bit of risk were being shelved in favor of low-risk products such as holding cash or government bonds (specifically the US dollar and Treasuries), the actions of the Federal Reserve and other central banks have caused a roarback in equity markets — and a corresponding increase in cryptocurrency values.
Since March, 15th, 2020, when the Federal Reserve cuts rates to zero in an unscheduled rate cut, the S&P 500 had its best quarter since 1998 and bitcoin’s price, about to touch $5,000 USD around that time period, is now roaring back above the $10,000 USD mark.
Understanding the relationship between monetary policy and cryptocurrencies can be a bit tricky, but it’s a worthy exercise. As cryptocurrencies start taking on institutional speculation, their short-term price movements gyrate with the markets. Some of this has been plainly stated before and often observed: some institutional investors think of bitcoin as digital gold.
They’ll use bitcoin as a hedge against the inflation they think will result from excessive unconventional monetary policy. This was the explicit view of Paul Tudor Jones, the billionaire investor loading up on bitcoin.
In this reading, the actions of central banks help create demand for cryptocurrencies by creating the conditions (excessive money supply) wherein a certain class of institutional investors feels the need to hedge their wealth.
But structural changes in monetary policy implementation also auger surprising new developments and support for new cryptocurrencies in ways that go beyond the “cryptocurrency as hedge” narrative.
Witness the new trend of DeFi, decentralized finance companies that are largely behind the growth in ethereum demand as ethereum gets locked into new financial products. DeFi represents alternative financial solutions built on ethereum that are looking to augment or replace traditional loans.
Typically, there’s a “search for yield” that happens when there are very few options to yield money in deposits or low-risk products. DeFi, with interest rates that range as high as 100% annualized on stablecoins looks like a more attractive option than fiat banks that can offer flat ~1% at best.
Within that structure, it’s clear that there are nuances, and perhaps warnings — products that yield that high likely are pure arbitrage situations that might fade away at any time and they carry with them risks (such as exploits) that might be underaccounted for. Yet, even if there are a lot of question marks — there’s no doubt that coordinated monetary policy around the world is driving people to look for new companies and technologies such as DeFi — an important secondary consequence.
The amount of unprecedented monetary support has also created a short-term window for institutional investors to be able to enter cryptocurrencies. Grayscale Investments LLC attracted more than $900 million in the second quarter, which was double any amount it had ever raised before. Most of that interest was spurred by institutional investors, who were supported by monetary policy, and placed in a “search for yield” and hedge-seeking situation.
Some of that was due to arbitrage, but there’s no doubt that institutional investors that were battening down the hatches when COVID-19 lockdowns were happening are back as a force across a variety of economic investments — including cryptocurrencies.
Some of this institutional investment comes on the heels of leading figures in the industry looking for shelter during the largest monetary expansion in history. This helps accentuate this short-term trend, with institutional investors suddenly finding the context, the need and the support to start pouring into investment in cryptocurrencies.
Beyond these factors however, is the potential pending development of a digital dollar. This is not being pushed by monetary authorities, but rather heard in the fiscal halls of power in Congress. Yet, research in this area will spur interest in cryptocurrencies by confirming the digital ascendency of finance into retail cash — and creating a contrast and another item that might highlight cryptocurrency’s usefulness as a hedge.
It is, however, the greater retail adoption of bitcoin and cryptocurrencies that is more interesting than the short-term movements associated with institutional investors pushed by monetary policy in one way or another towards cryptocurrencies.
A new study from Cornerstone Advisors says that 15% of Americans now own some cryptocurrency, with about half of those having invested in the first six months of 2020, among unprecedented monetary policy changes and COVID-19. High income, millennials and Gen Xers were some of the groups spurring this growth. Americans who don’t hold cryptocurrencies and had no plans to do so thought their financial health stayed the same (55%) mostly while a plurality of those that currently hold cryptocurrencies thought that their financial health was much better (44%).
Cryptocurrencies are getting short-term boosts in pricing from a wave of institutional and retail investors with a variety of incentives, many of them brought on by the largest monetary expansion of our age. Some of those incentives are here for the long haul, as monetary authorities struggle with the short-term effects of the COVID-19 pandemic and the longer-haul efforts to fully recover economically. Monetary policy during COVID-19 is acting as a bridge to cryptocurrencies for many new institutional and retail investors skeptical of its effects — and perhaps an enduring reason to stay in the cryptocurrency ecosystem.
I was one of the first writers in 2014 to write about the intersection of blockchain in remittance payments and drug policy with VentureBeat and TechCrunch. Since then, I’ve been an early long-term HODLer of Ethereum, and I’ve built several mini-projects with blockchain for fun. I’d like to learn as much as possible about our decentralized future while sharing that knowledge with you
Trading of Bitcoin, Ethereum, and other cryptocurrencies increased sharply at the beginning of 2020, then jumped to a new high in February—a level that was sustained for the height of the Coronavirus crisis from March through May.
“If historical growth rates can be maintained, Bitcoin’s current daily volume would need fewer than 4 years of growth to exceed daily volume of all US equities and fewer than 5 years to exceed daily volume of all US bonds.”
Where is this Coronavirus-fueled trading volume coming from and who will drive the future growth?
Who’s Buying Bitcoin?
A new study from Cornerstone Advisors revealed that 15% of American adults now own some form of cryptocurrency—a little more than half of whom invested in cryptocurrency for the first time during the first six months of 2020.
On average, these new investors obtained roughly $67.5 billion in cryptocurrencies, roughly $4,000 per person. The self-reported value of cryptocurrencies like Bitcoin and Ethereum for Americans who owned these assets prior to this year is about $111 billion, or close to $7,000 per person.
At 15% penetration, the US cracks the top 10 countries with the highest adoption of cryptocurrencies according to data from September 2019 (although a lot has changed since then).
The Demographics of Bitcoin Buyers
Who fueled this Bitcoin buying binge during the crisis?
High income, well-educated men. Nearly eight in 10 of 2020 crypto buyers were men with an average annual income of $130,000. Four in 10 have a Master’s degree or higher (70% have a Bachelor’s degree or higher).
Millennials and Gen Xers. Millennials (26 to 40 years old) comprised 57% of the consumers buying cryptocurrency in 2020 with Gen Xers (41 to 55 years old) accounting for 30%. Overall, 27% of Millennials and 21% of Gen Xers now hold some form of cryptocurrency, in contrast to 7% of Gen Zers, and 3% of Baby Boomers.
Bank of America customers. Overall, 21% of all consumers call Bank of America their primary bank. Of the consumers buying cryptocurrencies during the Bitcoin binge, almost half—47%—are customers of Bank of America. You’d think Bitcoin buyers would be customers of the digital banks, but only 6% of them call a digital bank their primary bank—in line with the population as a whole.
The Bitcoin Benefit
It’s hard to prove that holding cryptocurrencies is the cause of this, but 44% of Americans who have already invested in Bitcoin and other cryptocurrencies said that their financial health is “much better” since the beginning of the Covid crisis. That’s in contrast to just 5% of all other US consumers.
First Time Investors
From a demographic perspective, the first-time investors are very similar to the previous group of crypto holders, but they’re different in at least one significant way: They’re changing up the financial institutions they do business with.
Among the consumers who invested in cryptocurrency for the first time in 2020, half of them switched their primary banking relationship in the past six months—one-third did so in the past three months alone.
The Apple Effect
Apple Card holders only comprise 5% of all credit card customers, but among those that do have the card, 47% own some form of cryptocurrency—two-thirds of whom purchased crypto in 2020.
The Next Wave of Investors
The 11% of Americans who expect to invest in Bitcoin and other cryptocurrencies are somewhat different, demographically, from the current set of investors. Specifically, they are:
Women. Women only make up 22% of current cryptocurrency investors. In the next wave of investors, they account for 35% of the total.
Minorities. African-American and Hispanic consumers, who comprise 28% of all Americans, account for 23% of current crypto investors. Among those that anticipate investing in the next 12 months, 37% are from these two ethnic groups.
Younger and older. Just 6% of Gen Zers and Baby Boomers already have cryptocurrencies. In the next wave of investors, 17% are Gen Zers and 11% are Baby Boomers.
Less educated. Among current crypto investors, just 18% have not earned at least an Associate’s college degree. Among the consumers expecting to invest in cryptocurrencies in the next 12 months, that percentage rises to 36%.
One area of concern regarding the next wave of investors: Just 30% consider themselves to be “very financially literate,” in comparison to 54% of those who already hold cryptocurrencies.
The Crypto Opportunity For Banks
The surge in cryptocurrency investing has been a boon for Square. Bitcoin revenue for its Cash App for Q1 2020 was $306 million, up from $65 million in Q1 2019. Not surprisingly, reports indicate that PayPal intends to offer crypto purchasing through its PayPal and Venmo apps.
While many banks prevent their customers from buying cryptocurrencies using the cards they issue, the mainstreaming of crypto investing raises new questions for bnaks—not just regarding allowing their cards to be used, but whether or not they should provide more cryptocurrency investment-related services altogether.
A new announcement from the Office of the Comptroller of the Currency (OCC) may be opening the door to that. According to an article here in Forbes, the OCC letter:
“Clarifies that national banks have the authority to provide fiat bank accounts and cryptocurrency custodial services to cryptocurrency businesses. This clarification may open the doors for larger financial institutions to be provide bank accounts to cryptocurrency companies, as well as actually provide custodial services for customers’ private keys.”
Among the large banks, a few appear to have a head start over the others. A site called Moon Banking provides a “crypto friendliness” score for banks, with USAA and Ally Bank leading the way in the US.
All banks—in particular, community banks and credit unions—should look at opportunities to provide Bitcoin wallets and other cryptocurrency trading services as a way to differentiate their services.
Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors. Author of the book Smarter Bank and the Fintech Snark Tank on Forbes, Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events.