4 min read
As Bitcoin goes mainstream, joining the ranks of its supporters is Jurrien Timmer, the director of Global Macro at Fidelity, a large financial services company that controls more than $3.3 trillion. And Bitcoin has a “unique advantage over gold,” he said.
Timmer last month published a note in which he suggested that it’s a good idea for portfolio managers to consider Bitcoin as a replacement for gold or bonds.
“Some investors may wish to consider bitcoin, alongside other alternatives, as one component of the bond side of a 60/40 stock/bond portfolio,” he wrote.
Timmer recited the features that give Bitcoin its value: its scarcity, its declining supply-growth curve, its reputation and its adherence to Metcalfe’s Law—which holds that a network’s value increases faster as the number of users rises.
But why invest in Bitcoin?
Timmer said it makes sense to consider Bitcoin alongside gold, which is similarly scarce (and doesn’t do much apart from exist as a store of value).
He noted that the world’s monetary systems are less backed by gold than ever, meaning the global economy is increasingly reliant on the monetary policies of central banks.
In 1970, a year before the US abandoned its gold standard, the ratio of fiat reserves to gold reserves was about 2 to 1; now it’s about 10 to 1, he said.
The financial crisis of 2008 made fiat reserves even less reliant on gold; the pandemic has only made that divergence even starker.
“So, in this fiat era we have less gold backing up the monetary system at a time when money is being printed at breathtaking speed,” he said.
“For some, this has made gold more appealing as an asset class, and lately bitcoin has joined the conversation as, potentially, a form of digital gold.”
But which is better?
Noting that his opinion “represents just one opinion among many,” Timmer added that Bitcoin is far from a secure investment. Although both gold and Bitcoin are scarce, Bitcoin is digital and could be regulated out of existence. “Trusting that something conceptual and unproven can compete with a tangible rarity treasured for millennia takes somewhat of a leap of faith, in my view,” said Timmer.
But Bitcoin “may have a unique advantage over gold,” he said—”Bitcoin supply, by design, is finite,” he said. While Bitcoin’s supply growth is flattening, and may one day flatline, gold production is steady. “In other words, gold is scarce but not getting any scarcer,” said Timmer.
Both gold and Bitcoin are worth considering at a time of low global bond yields, which are close to zero these days. Last week, billionaire investor and CEO of Berkshire Hathaway Warren Buffett said that bond investors face a “bleak future.”
Bitcoin’s not necessarily better than stocks, said Timmer—especially in the short-term, since Bitcoins price is extremely volatile. Stocks offer yields and pay out dividends, meaning that investments compound over time. Only in times of hyperinflation would gold, and perhaps Bitcoin, hold the upper hand.
However, Bitcoin’s characteristics and growing market make it an attractive alternative to gold or bonds, he said. “Bitcoin is gaining credibility, and as a digital analog of gold but with greater convexity, my guess is that bitcoin will, over time, take more market share from gold,” he said.
Portfolio managers must no longer question “whether” to invest in Bitcoin, he said, but “how much?”
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