[updated 3 December 2019]
WisdomTree, a major exchange traded fund provider with $61 billion in assets under management, says it is time for institutions and professional investors to seize the bitcoin opportunity.
In a research note for its professional clients entitled: Bitcoin: It’s Time to Seize the Opportunity, the note identifies the lack of trust in central banks, how bitcoin solves some of the problems of the current monetary system and how perceptions and actual value evolves over time, particularly under the impact of new technology.
Investor trust in central banks has broken down
Noting the immense power of central banks, the paper says his rests on a “trust-based” system of accountability.
However, that in turn depends on the independence of central banks, and that is in doubt – and not just in lesser developed countries such as Brazil, Argentina and Venezuela.
The report takes aim at the US Federal Reserve and the political appointees that make up its governing body and its coordination with the US Treasury.
In a damning observation, the Market Insight report says “this raises many questions over conflicts of interest, market manipulation and what an independent central bank means”.
It claims that this means, for instance, that there is no “fail-safe mechanism” to stop excess debt issuance by the US Treasury “while the Federal Reserve reduces interest rates”.
And it’s not just the US as far as the advanced economies goes.
In the eurozone area, the European Central Bank, through its asset purchase programme, continues to push down interest rates, so that today sovereign bonds have a negative yield in Germany and near zero yields among the PIIGS – Portugal, Ireland, Italy, Greece and Spain.
Looking at the G20 as a whole, and the picture is the same, where “central banks have become buyers of all kinds of debt”.
Bitcoin solves many monetary system problems
Bitcoin “solves many of the problems associated with today’s monetary system”.
Created “by the public” and not a sovereign state, “[bitcoin] is a declaration of the democratic determination of value as its very existence undergoes a continuous vote-of-confidence”.
With bitcoin oversupply is not a problem because it is capped and furthermore is self-regulating, says the report; and there is “full visibility” because of the immutable accounting of the blockchain.
For an asset to have value, it needs to have “key attributes” and “some permanent traits that make it an attractive candidate as a unit of exchange”, as shown in the table below.
Evolution of value – crypto network effects
The report then considers how “the appeal of an investable proposition” has changed in recent years.
In 1995 a price/earnings ratio of 15 was “fair value”; by 2005 revenue was the guiding star, as with Amazon; 10 years later, for certain industries, it was all about subscriber base; and looking out to 2025 “it is likely that value will accrue in increased efficiencies in network activity: the cryptocurrency narrative”.
There’s also a demographic element that informs the valuation thesis, with younger investors able to grasp the digitisation and network effect properties more readily.
The paper ends by answering this question: But how does one become comfortable with the value of an asset that has no precedent or benchmark?
Being a commodity of limited supply and “fixed parameters”, combined with its network effects “where security and value accrue with greater usage”, are at the heart of a fair value analysis says the report.
Bitcoin supply shock possible says WisdomTree
When the note was written bitcoin was priced at $10,000 and the author(s) posits fair value at a “materially higher” price point.
WisdomTree cites scarcity as the “headline grabber” among the many component parts that make up the bitcoin whole. On that, the research note says it is not “inconceivable that we will see a supply shock issue just as institutions are gearing up their interest”.
In conclusion, the WisdomTree report states: “the uncertainty and excesses within the global economic backdrop, paired with a demand for financial prudence and egalitarianism, means that there are numerous tailwinds that will serve to channel capital, at least at the margin, away from traditional investment options to the benefit of Bitcoin. For this reason, now is the time for investors to seize the Bitcoin opportunity.”
Update (3 December 2019): WisdomTree launches bitcoin ETP
WisdomTree launched a physically backed exchange traded product on 3 December, listed on the Swiss SIX stock exchange.
The ETP has a total expense ratio of 0.95%
Alexis Marinof, head of Europe, WisdomTree, said of the launch: “We have been monitoring cryptocurrencies for some time and are excited to bring investors secure access to this developing asset class. We have seen enough to believe that digital assets, like Bitcoin, are not a passing trend and can play a role in portfolios.”