MUMBAI: Meltem Demirors, Chief Strategy Officer at Europe’s largest crypto asset management company CoinShares, expects the price of Bitcoin to continue to rise in 2021 simply because “there is simply not enough Bitcoin to meet the massive wave of demand “.
“I think there will be volatility and cyclicality, but the trend will continue to go up over the next year as this is really a supply-demand story,” Demirors told ETMarkets.com in an email interview.
Demirors pointed to the massive influx of institutional investors into Bitcoin over the past 12 months, which has pushed cryptocurrency demand to stratospheric levels. “The demand is coming from institutional investors who want to allocate not $ 10 million or $ 20 million or $ 30 million, but $ 100 million or $ 500 million or even a billion dollars in one ticket,” she said.
Demirors’ managed investment firm has quadrupled its assets under management to $ 4 billion in four months as the groundbreaking rally in Bitcoin pushed institutional and retail investors towards the asset class. Bitcoin has grown up to 700 percent since April and hit a record high of over $ 42,000 last week.
The cryptocurrency plunged 20 percent on Monday, but has since made up almost all of those losses as major investors amassed the asset at lower prices.
“You bet every institution, company, government around the world is talking about Bitcoin. You have meetings of the investment committee to talk about the allocation strategy and Bitcoin is definitely part of that conversation with every institution on the street … with every single institution, “Demirors insisted on the growing importance of the once-malicious asset class.
The processed excerpts follow:
How big is this moment in the history of Bitcoin and cryptocurrencies overall?
Firmly! Unprecedented! In March, the world changed fundamentally and people’s mental market models changed. Unprecedented amount of money printing, unprecedented amount of institutional failure, unprecedented amount of unrest, unprecedented amount of economic crisis – these are the conditions for which Bitcoin was created.
What we’ve seen over the past year is a test of the narratives of Bitcoin as an asset class. We have hedge fund managers who allocate bitcoin. We have companies that put bitcoin on their balance sheets. It’s the fundamental shift in how people view Bitcoin.
What led to this realization that Bitcoin is getting from institutional investors?
I spoke to a macro fund manager last week. He told me, “I’m looking at my portfolio, my portfolio is below average this year, where is alpha?” Fixed income is zero, interest rates are zero. Shares? Yes, technology stocks are doing well, but core stock portfolios are not doing well. So if you are a money manager, where do you get your alpha from?
So he said, “You know what I did at the end of the year when I put part of my fund in bitcoin and it allowed me to outperform.”
People need alpha. People need growth. We had a record month on the collector’s market in December. People buy art. People buy baseball cards. People buy good wine and watches. People buy real estate. This is the narrative that unfolds.
People want out of cash and into assets that are worth overtime, and Bitcoin really is the ultimate collector’s item.
You know people also say that a lot has changed at the custodian level and this has given institutional investors a lot of confidence. Could you shed some light on what has changed there especially since 2017-2018?
Yeah, I think that’s a great point, and I think it’s a story that goes beyond custody. It really is a story about market infrastructure. If I’m a traditional money manager, I’m not going to create an account with CoinBase that is ridiculous.
If I am an institutional asset manager, I am not going to create an entirely new operational infrastructure so that I can participate in a new asset class.
Over the past three years, all of these niche crypto-native locations have integrated into existing financial institutions where traditional market participants are already trading.
It’s really about building these bridges between the world I come from which is made up of crypto and the old markets.
Traditional marketplaces are gradually catching up and even outperforming crypto-native marketplaces on the derivatives side. In 2019, we had derivatives volume of $ 3 trillion, and in 2020 we are close to $ 12 trillion, and in 2021 we expect $ 25 trillion.
In December alone, we traded a derivative volume of 8 billion US dollars at the CoinShare capital market counter. We expect to trade nearly $ 100 billion this year. That is an increase from last year when we were trading around $ 70 billion. Our assets under management increased from $ 1 billion to now $ 4 billion last week.
It’s a whole different market, but the pace at which it’s changing isn’t just in crypto-native places, it’s also in traditional places, traditional exchanges.
How surprised are you at the extent of this shift and what role did the pandemic play in it?
I am not surprised at all. I wouldn’t be in this industry if I didn’t believe this was going to happen. What surprised me is the speed at which it happened, and I think part of that is … we have a joke crypto. What you will see a year in crypto is like ten years in normal markets.
I think crypto has continued to move forward at a rapid pace, but other markets have caught up.
If we just look at the volatility of bitcoin, when I met with investors in 2020 and talked to them about bitcoin, one of the big objections we’ve always had was volatility. People were very concerned about the volatility of Bitcoin and especially the extreme fluctuations. Bitcoin is still volatile. But in 2021 and late 2020 everything else became much more volatile, so Bitcoin didn’t feel as volatile anymore from a relative standpoint because other markets had become more volatile.
I think the story that really developed here is that as the markets changed, so too did people’s psychology.
I think the way asset managers and allocators see the world is fundamentally different. The things that they have been doing for the past 40 years are not going to work in this new environment and that is why the pace at which changes have taken place is so fast.
You bet every institution, company, government around the world is talking about Bitcoin. You have meetings of the investment committee to talk about allocation strategy and Bitcoin is definitely part of that conversation at every institution on the street … every single institution.
People argue that Bitcoin is a better store of value than gold. Is It Really Better Than Gold?
I come from Turkey, where everyone knows three prices. We know the price of the lira, our currency. We know the price of the dollar and we know the price of gold. We recently added a fourth prize. Everyone in Turkey now knows the price of Bitcoin. I feel you in the gold story It’s definitely prominent.
I think part of the narrative here is a broader narrative about digitization. We lived in a very physical world. I remember my grandmother having gold bracelets on her arms that were given to her at her wedding and that was something like her life savings. It was their store of value, and if the family needed something, they might sell their gold bracelet.
But in the world we live in today, I won’t be walking around with the gold bar in my pocket. Even if I invest in gold, I can buy gold on the stock exchange. I can buy gold ETFs. I can buy gold miners. However, it is very difficult for the average person to buy and store physical gold.
It’s expensive to store and that’s why Bitcoin is now better than gold because it’s digital. It’s portable. You can walk around with bitcoin on your phone and I think in terms of what people want to invest in, my dad invested in gold. I don’t invest in gold. Nobody in my age group invests in gold. So there is also a generation story going on here.
We are facing the greatest transfer of wealth in human history from older generations to younger generations, and younger generations do not want to fall back on gold. You want to assign bitcoin. You want to assign yourself to digital assets. Bitcoin is truly an asset designed for this new reality. It is the first digital native store of value.
Santiago Capital’s Brent Johnson recently said it wouldn’t be easy sailing for Bitcoin in the future as governments will return the favor at some point. Her thoughts.
For the past 40 years we have operated in a world where the US dollar is the world’s reserve currency, but I think one of the things that is happening is that we no longer live in a world with a single currency. At this point, I think Bitcoin is just too big and too widespread to really stop. I believe, and this is one person’s view, that this asset class has grown too large and the amount of intellectual and human capital that has been invested in the Bitcoin ecosystem has become virtually impossible at this point would be anything that hinders the existence of the Bitcoin network.
Can Bitcoin help nation states get out of the US dollar roof and possibly become economically independent from the greenback?
Yeah, I think you’re exactly right. I think what is really interesting is that the jurisdictions that are friendly to bitcoin and crypto innovation are seeing tremendous inflows of human capital, financial capital and people starting a business. I think they have a competitive advantage. We see nations accepting bitcoin and cryptocurrencies. I definitely think it will be a trend. One of my predictions for 2021 is that we will see with crossed fingers how a nation state adds bitcoin as a reserve value, which will be my dream.
On the price side of Bitcoin, Real Vision’s Raoul Pal recently said he was likely to expect a 40% correction. Do you see a correction to this scale?
Look, volatility has always been part of history. We saw a very rapid rise in prices. Now if you look at the options market, the net interest rate is rather long, there aren’t many people shorting Bitcoin. Most of the firms and most of the people who trade are net long, but then people will eventually take profits. Most of the people who assigned Bitcoin are now in the profit. I think we will continue to see an increase over the course of the year. The demand from institutions that want to allocate not $ 10 million or $ 20 or 30, but rather $ 100 million or $ 500 million or even $ 1 billion in one ticket has increased dramatically in the past 12 months. Yes, I think there will be volatility and cyclicality, but I think the trend will continue to rise this year as this is really a supply-demand story and at the end of the day there just isn’t enough bitcoin to make the to counter massive wave of demand that we are faced with.
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