One of the key arguments we made in our recent research paper on Bitcoin is that investors need to get better acquainted with the narrative at the core of Bitcoin’s value proposition and to gauge the extent to which that narrative becomes part of public discourse. Sooner than expected, that seems to be happening right now.
If 2020 was about how a pandemic stopped the global economy in its tracks, exposed inequities, exacerbated divisions and accelerated digitalization, 2021 will be a year of rebalancing (if not a reckoning).
A shift of seismic proportions is taking place in the way that investors interpret and navigate the markets and in the way we think about value. I believe that identity, community and agency are central to this new paradigm – this is how the stars align for Bitcoin.
Opportunities Beyond Profits
In the month after the March 2020 market crash, AAX’s CEO, Thor Chan, published an article on investing in the post-covid economy and how it presented opportunities beyond profits. With virtually all markets down, an excess of cash and a blank canvas future, investing became less about just betting on the most likely survivors, and more about re-imagining the world and allocating capital to those projects, companies and sectors that investors think ought to thrive going forward.
Of course, this approach is not new. In fact, venture capitalist Chamath Palihapitiya’s Social Capital was built entirely around this notion that capital allocations can be used to steer human progress. Just recently, on CNBC, Chamath commented on WallStreetBets and the crowdfunded short squeeze on GameStop. He pushed back against the narrative that depicts retail investors as being incapable of fundamental analysis and that therefore GME’s stock price was bound to plummet.
No question, GME’s current valuation seems decoupled from its fundamentals in the conventional sense. However, what is not being considered in the discussion is that buyers of GME may be operating on the basis of an entirely different set of fundamentals. This idea becomes somewhat clearer in an open letter to CNCB by one of the WallStreetBets members, where it reads
“I own GameStop not because Diamond Hands. I own GameStop because I AM GameStop. I am choosing to invest in my generation, and selling would be selling myself out.”
It could be argued that this is evidence of the idea that retail investors are merely led by emotions, whereas institutional investors trade rationally, and by implication emotionlessly. However, the reality is that investments are never neutral and almost always political.
The GME surge does not track the performance of GameStop, the company, any longer. It measures the determination of a community of retail investors to take a stand against Wall Street.
If it wasn’t for Robinhood and other trading apps preventing retail traders from buying more stocks, the rise would have probably continued for a while longer until, perhaps, WallStreetBet members own the game.
This brings us to the inevitable, to reference Elon Musk.
Bitcoin is in the midst of a cyclical bull run. Corporate investors are recognizing its appeal and are allocating sizable portions of their portfolios to Bitcoin to hedge against inflation in the long term. But for this to really take off and catapult the asset to the next price level, the masses need to get onboard.
Nowadays, people speak about Bitcoin as a long-term savings account, a way to get out of cash or a way to truly own your wealth.
In our industry, it is not at all uncommon to hear of friends who keep most of their savings in their private crypto account, diversified across Bitcoin, some altcoins, stablecoins and perhaps tokenized gold. Bitcoin is traded on hundreds of centralized and decentralized exchanges against hundreds of different tokens and fiat currencies, all day every day. It has given rise to a free marketplace bursting with creativity and due to its globally decentralised nature, no country can lay claim to this currency. It belongs to all.
It may appear otherwise, but Bitcoin’s current bull run is not fear-driven. As more people come to realize what Bitcoin really is, it is not unreasonable to see a real shift in corporate and private wealth move into this asset class. Nor does it seem so far-fetched to believe that billions of people who own a smart phone will one day also own a crypto wallet and that Bitcoin will be the most trusted and desired stores of value.