US fund sees bitcoin as ‘one of the most profitable assets,' alternative to US$150 trillion of sub-zero yielding cash and bonds

Asia's Tech News Daily

bitcoin, Hong Kong, leading financial institutions, digital assets

Inflation and relaxed monetary policies are poised to erode US$150 trillion worth of bonds and cash of their real value over the next decade, giving alternative assets like bitcoin a leg up, according to US money manager Capital Group.

Bitcoin should “interest anyone interacting with money”, equity portfolio manager Mark Casey said during a webinar on Wednesday, making one of its most high-profile calls on the oldest digital currencies. Bitcoin could become “one of the most profitable assets,” the firm said, adding that cryptocurrencies’ independence from central bank control and limited supply make them a good inflation hedge.

“There is tremendous appeal for this type of asset,” said Casey, whose Los Angeles-headquartered company manages about US$2.6 trillion in assets globally. Even if a small but increasing portion of the world’s US$600 trillion financial assets gets allocated to bitcoin, that would continue to drive up its price, Casey added.

Bitcoin climbed to a record high on Wednesday, and the first US bitcoin futures-based exchange-traded fund built on gains after a solid debut on Tuesday, according to a Reuters report. It traded as high as US$66,974.77, breaking the previous record of US$64,895.22 in April.

Capital Group, which has 29 offices globally including in Hong Kong, has joined a growing band of leading financial institutions that have started embracing bitcoin whose market cap topped US$1.2 trillion on Wednesday. Bank of America said digital assets were “too large to ignore” in a research report published this month. Fidelity Investments, which manages assets worth US$4.2 trillion, plans to launch a bitcoin exchange traded fund and has applied to the US securities watchdog for approval.

The positive call on bitcoin comes amid the launch of the first US bitcoin-linked ETF on Tuesday, which tracks bitcoin futures traded on the CME. This partly helped to drive bitcoin over US$64,000 on Wednesday, close to its historical high of US$64,860 reached in April.

Bitcoin has “non-inflationary” properties because all fiat currencies are prone to losing their value if central banks adopt a loose monetary stance to support their respective economies. The bitcoin blockchain is designed to cap supply at 21 million, of which over 18.8 million has already been mined. The limited supply and independence from central banks’ control prevents the cryptocurrency’s value from being diluted, Casey said.

Casey also pointed out that there are about US$20 trillion worth of bonds outstanding and another US$100 trillion of assets tied to cash that will be affected by negative interest rates globally. And coupled with “tens of trillions” of bonds whose coupon rates will be lower than the inflation rate, the total amount affected was likely to be around US$150 trillion, he said.

Bitcoin advocates have for long touted the anti-inflation property of the cryptocurrency, arguing that it serves as a store of value and that it qualifies as a safe haven asset as good as gold.

While Capital Group did not answer questions about its exposure to digital assets during the webinar, the 90-year-old asset manager appears to have a stake in bitcoin. According to a report by Blockworks, which provides insights on digital assets, Capital Group holds a 12 per cent indirect stake in Nasdaq-listed MicroStrategy. MicoStrategy is a provider of enterprise analytics and owns over 105,000 bitcoin.

Bitcoin’s critics, meanwhile, say that its volatility makes it a bad choice for preserving value over short periods of time.

However, over the course of 10 years, bitcoin’s performance was found to be uncorrelated to equities, bonds, the US dollar and commodities, according to Bobby Esnard, a tech analyst at Capital Group.

“Bitcoin could be useful in places where there are restrictions on currency exchange, and where the local currency values [are not stable],” he said.

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