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June 18, 2020

Episode 008

Saifedean Ammous, Kraken & Protos


Wealth Transfer

Kraken published a report on the US will undergo intergenerational wealth transfer of $68.4 trillion in the coming decades. Millennials and GenX’ers could drive $1 trillion or more of wealth into Bitcoin over the next 25 years. Pete Rizzo, Kraken Digital Assets Editor, said:

“Younger generations tend to have a more favorable outlook for Bitcoin.”

“We wanted to apply the lens of bitcoin’s long-term value proposition, what we think is a store of value, a technology that people would use for savings and that provides a non-government alternative to money. And then we wanted to apply data from what we know about how generational wealth transfer occurs…We can make some estimates based on how we know generations interact and transfer wealth. So that’s inheritance tax, mortality rates, things like that.”

“The report really paints a picture of, if it is true that Millennials and Gen X’s are more prone to making BTC investments and believing favorably in bitcoin, and if they are going to inherit this large amount money from other generations, maybe who are less favorable, and if they do then decide to put some of that money into bitcoin, what that might do for the market, how in the future what that market looks like.”

Austrian School of Economics

Dr. Saifedean Ammous published “The Bitcoin Standard. He discussed the Austrian School of Economics thinking and the interrelationship between Austrian Economics and bitcoin.
“I think part of the reason that mainstream economists have been so dismissive of bitcoin is that it flies in the face of how they would like to understand money from the aspect of the government control, the state theory of money. And the second point, why it makes sense in Austrian Economics and why it doesn’t make sense from a mainstream perspective, is the issue of the limited supply. This is why I became fascinated with bitcoin when I first heard about it.”

Dr. Ammous believes that hyperinflation is a result of horrific monetary policy and it doesn’t happen because of bitcoin, adding:
“If we do go through hyperinflation, I think arguably bitcoin would be the solution to this because bitcoin provides people with the alternative that if those things happen, you can get your money out of your country. So bitcoin would benefit from it but only to the extent that people benefit from bitcoin.”

Fidelity Digital Assets published a report saying that the number of institutional investors in digital assets is growing significantly alongside the number of investors who believe digital assets should be part of their portfolio. Their adoption number is 36%. (24:42) Dr. Ammous’ assessment is that “it’s way too high.” But he agrees it’s a positive directional indicator, saying:

“I think that the interesting thing is that people are definitely hearing about it more and more…If you’re an asset manager at this point, you’re looking around at assets that are non-correlated, you look around at previous performance. Every year, the case [becomes] more and more compelling. Even after you get the occasional one very bad year, you still look at it in the long run, the performance. I think it’s only a matter of time before they start asking questions more and more and get into it. But in terms of current volume, I think it’s an exaggeration but it’s a good indicator of where we might be headed.”

Fidelity’s Digital Asset Survey

Fidelity surveyed 800 institutions in the US and Europe, the results of which reveal that one-third of clients are already allocated to digital assets and 80% find something appealing. Ria Bhutoria, director of research at Fidelity Digital Assets, provided more insight on which segments found digital assets appealing, saying:

“What we found was that actually 80% of pensions surveyed find something appealing. About 50% of endowments and foundations and 100% of crypto hedge funds and venture funds found something appealing about digital assets. And there were multiple characteristics that they could have selected. The top three were that digital assets are uncorrelated, they are an innovative tech play and they provide high potential upside.”

On whether demand for digital assets is growing beyond bitcoin and Ethereum, Bhutoria said:

“Certainly, crypto hedge funds and venture funds are interested in digital assets beyond bitcoin and Ethereum. But if you look beyond that to more institutional investors like pensions, endowments, family offices, financial advisors and so on, their interest is heavily focused on bitcoin since it’s the largest and oldest digital asset. It has the most mature infrastructure including increasing support from legacy institutions.”

Fidelity’s interest currently is in custody and expanding trade execution.

“From a broader industry perspective, we’ve seen explosive growth in stablecoins. Fidelity Digital Assets was born out of a research lab. And at any given time, that lab is evaluating different parts of the industry and we’re continuing to explore and research the space. So we’re definitely keeping a pulse on interest in adding support for stablecoins and whether there is interest in lending and borrowing, we’re keeping a pulse on that.”

Onchain Reaction

Philip Gradwell, chief economist at Chainalysis, provided this week’s onchain reaction:

  •  “Bitcoin inflows into exchanges have continued to decline. Last week we saw the lowest seven day average that we’ve seen in six months. This week it’s been even lower. There are now around 57,000 BTC flowing into exchanges every day.”
  •  “Overall bitcoin balances continue to rise. Tether balances have actually done much the same, continuing to build.”
  •  “When we look at the flows between the different types of exchanges, actually the net flows between them are almost zero. So while there’s still BTC going back and forth between say crypto to fiat/crypto to crypto exchanges, the flow between those two types is balancing out. That’s interesting. It does suggest that traders responsible for most of the net flows between different types of exchanges are actually happy with where their portfolio of assets is sitting. They think they’re well positioned for what’s to come in the market in the coming days and weeks.”
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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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