"Bitcoin had anoverallscore nearly 60% of that of financial assetsbut has a market cap that is 1/1200th of that. It scores 66% of gold as a store of value, but has a market cap that is 1/60th of gold’s outstanding value.
Something appears wrong here and my guess is it is the price of Bitcoin."
Though the excerpt above may sound like another tweet from crypto twitter, it actually comes from renowned hedge fund manager Paul Tudor Jones and former IMF executive Lorenzo Giorgianni in their investor letter titled "The Great Monetary Inflation" which compares different financial assets as a store of value over the next 10 years.
The letter starts by assessing money printing around the world. Governments have printed $3.9 billion dollars to combat drastic economic effects of the COVID-19 crisis. Given the large expansion of the amount of available money, evidenced by the rapid increase in the M2 monetary aggregate, the letter anticipates an inflationary crisis and tries to answer the trillion-dollar question: Which assets should investors hold now?
In that assessment, Jones and his research team compared four major financial asset classes: cash, gold, financial assets (stocks and credit), and Bitcoin as a store of value. The comparison took into consideration four critical factors:
1. Purchasing power (30% weight)
2. Trustworthiness (30% weight)
3. Liquidity (20% weight)
4. Portability (20% weight)
The research team's assessment is summarized in the table below
If BTC realizes its potential as a settlement layer, it will likely assume a market cap closer to gold. According to this assessment, that would mean a 60x increase from current BTC price which rounds out to about half a million dollars a pop. If bitcoin instead emerges as the winner in the SoV category, this means a 1200x appreciation, or $10M per BTC.
If $10M per BTC sounds familiar to you, it's the same figure that one of bitcoin's earliest developers, Hal Finney, estimated with some back-of-the-envelope math in January 2009.
Jones puts his money where his mouth is. At the end of the letter, he discloses that the Tudor BVI fund will hold as much as a low single-digit percentage of its assets in bitcoin futures for now - becoming one of the first reputable hedge fund managers to publically embrace Bitcoin.
One point of rebuttal
Though "The Great Monetary Inflation" analysis is bullish for bitcoin prospects, it scores bitcoin low on the Trustworthiness metric because bitcoin's only existed for 11 years. We believe the more accurate categorization here would be Established History, as Vijay Boyapati uses in his article, The Bullish Case for Bitcoin. The preference for Established History vs Trustworthiness may seem like it's a trivial semantics argument, but it is not.
One of bitcoin's main features is public transparency and auditability via its ledger. There's no manipulation of bitcoin's bits behind a savvy financier's computer screen in a cubicle in New York. You can't pull a fast one over bitcoin holders by leveraging your expertise in metallurgy. To say bitcoin's trustworthiness is the lowest is to defy the very reason it exists. Bitcoin's trustworthiness is perhaps the highest of all assets listed.
⚡️ Square Bitcoin Revenue in 2020 Q1 Almost 5 Times 2019 Q1
Square's bitcoin sales in Q1 2020 almost increased 5 fold compared to Q1 2019. Revenue, or volume moved in this instance, jumped to more than $306M in Q1 2020, netting the company about $7M in profit. The increase in profit may be partially due to the increased fees that Cash App has been collecting from BTC transactions since November 2019. The fees combine 1.75% of the transaction size in addition to a volatility fee which depends on market conditions.
🔹 Tornado.cash Compliance Tool
Tornado.cash, a zk-SNARKs privacy tool for Ethereum, released an interesting tool to strike a balance between privacy of transactions and compliance requirements. The tool allows users to generate a cryptographic proof of the sources of the funds if they ever need to do so. On a separate note, the privacy protocol currently allows anyone to contribute to the protocol's setup ceremony to improve the privacy guarantees of the protocol.
🔹 Personal Tokens: Are They a Legit Fundraising Mechanism?
This week, the Ethereum community debated the concept of personal tokens. The idea is an individual creates ERC20 tokens for themselves. The individual can then distribute or sell these tokens to their community and demand payment for their services in this specific token. Although the idea seems interesting and shares some semblance to Income Share Agreements, it lacks a critically important factor which is enforcement. How one enforces that the issuer honors the terms of their tokens is still an open question.
🔹 Synthetix Optimistic Roll-ups Demo
Ethereum's DeFi protocols, especially DEXs, are preparing for a future where Ethereum L2 solutions can help them improve throughput and reduce fees. Last week, derivative protocols Synthetix started a demo using optimistic rollups in collaboration with the Optimism group. It is worth mentioning that IDEX has been testing a similar feature since October of last year. It is still not clear when these L2 scaling solutions would be available on Mainnet.
📌 Libra Picks A Legal Expert as A CEO
After taking a few steps backward to align with regulators' wishes, Facebook-led project Libra takes a major step forward to ensure its future compliance. The project recently picked Stuart Levey, the current Chief Legal Officer of HSBC, as its first CEO. Mr. Levey's previous experience working for the US government in financial intelligence will likely put regulators at ease.
📌 TD Labs Celo Validator
As the Celo mainnet is planned to launch next Wednesday, May 13th, we remind our readers that our network participation entity, TD Labs, is currently one of the top validators on the Celo network. The TD Labs validator is operated in collaboration with Staked. Voting for validators allows voters to earn 6% annual return on their Celo cGLD tokens.
Voting instructions for TD Labs/Staked validator are listed here.
Disclosure: Volt Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.