Purchases of Bitcoin by central banks and sovereign funds are inevitable as the adoption of cryptocurrencies continues to grow, according to Gemini co-founder Tyler Winklevoss.
More companies are also likely to hold Bitcoin on their balance sheet for treasury purposes, as it serves as a better hedge against inflation than gold, Mr Winklevoss, a cryptocurrencies afficionado, told a webinar organised last week by the AIM Summit and digital asset manager 3iQ.
“At some point a central bank will have Bitcoin on its balance sheet. That just will happen,” Mr Winklevoss said.
“Because central banks have gold on their balance sheet. And Bitcoin is Gold 2.0,” he argued.
Mr Winklevoss and his twin brother Cameron rose to fame in 2004 after suing Facebook founder Mark Zuckerberg, whom they had employed to build a social networking site, HarvardConnection. The pair alleged that he stole their idea to create Facebook and the case was settled in 2008, with the twins reportedly receiving $65 million in cash and Facebook shares. They invested this in Bitcoin and now have a net worth of $3 billion each, according to Forbes.
The Winklevoss twins first invested in Bitcoin through the Mt Gox exchange in Japan in 2012. Mt Gox was once the world’s largest Bitcoin exchange handling 70 per cent of all transactions but it crashed in 2014 after hackers stole about 850,000 Bitcoin (worth $49.2bn at today’s prices) from the site’s customers.
Their loss spurred them into setting up Gemini, a company that offers cryptocurrency custody and exchange services that is regulated by the New York State Department of Financial Services.
Mr Winklevoss said they wanted to build an “institutional-grade” exchange that could be used by the world’s biggest money managers. However, thus far only a handful of large asset managers have offered Bitcoin-related investments to clients.
Gemini has held discussions with sovereign funds, pension funds and endowment managers about investing in Bitcoin, according to Mr Winklevoss.
“You’d be shocked how sophisticated and knowledgeable they are in the asset class,” he said.
“In my opinion, it is not an if, it is a when that a sovereign wealth fund comes out and says they have Bitcoin. They may already have it.”
He expects more companies to hold Bitcoin on their balance sheet as a tool to move money between jurisdictions and a hedge against devaluing currencies, citing the well-documented examples of Tesla and Square.
“There’s about 40,000 publicly-traded companies around the world on global stock exchanges that are regulated. I think only 32 have Bitcoin on their balance sheet. That number is going to increase over time. You’re going to see the Fortune 100, 500, 1,000 – they’re all going to have Bitcoin,” Mr Winklevoss said.
The huge monetary stimulus undertaken by the US Federal Reserve and other central banks around the world is also convincing people who were sceptical about cryptocurrency in the past to embrace it, he argued. The US federal debt-to-GDP ratio hit 135 per cent in the second quarter of last year at the peak of the pandemic, which was “higher than in World War II”.
“There’s actually a big difference, though, because back then we had full employment and record production for the war effort. This time around … we have had record unemployment and the world’s production [ground] to a halt.
“It doesn’t take a rocket scientist to see what’s happening in these fiat government currency regimes.”
Bitcoin rose to $57,551.41 at 6.33pm UAE time on the Luxembourg-based Bitstamp exchange on Saturday. It had risen above $63,000 earlier this month, but faced a sell-off after US President Joe Biden announced plans to increase capital gains taxes. It has still increased six-fold in value over the past 12 months, with a market cap of $1.08 trillion
Regulators in many countries have expressed concerns, though, with Turkey’s government introducing a ban on using cryptocurrencies for payment. India’s government is also reported to be weighing up a ban and regulators in other markets have expressed concern about Bitcoin’s role in money laundering and other illicit activity.
However, 3iQ and other asset managers have developed exchange-traded funds and other regulated vehicles through which asset managers can offer their clients exposure to Bitcoin.
Earlier this month the Canadian digital asset manager said it will seek a listing on Nasdaq Dubai for The Bitcoin Fund, which has a net asset value of $1.33bn. The company is targeting around $200m of subscriptions from investors through the Dubai listing.
“We are seeing a lot of banks trying to get access to crypto for their customers. I think a lot of their customers feel left out,” Mr Winklevoss said.
“They’ve seen Bitcoin is the best-performing asset of the last decade, it’s on track to be the best-performing asset of this decade – I think Ether is neck and neck with it. But these assets have absolutely blown away the equities market, the FAANG companies – the best of the best.” FAANG is an acronym referring to the stocks of Facebook, Amazon, Apple, Netflix and Alphabet (formerly known as Google)
3iQ’s chairman and chief executive Frederick Pye said that although “the world is waiting” for pension funds and other institutions to declare their Bitcoin positions, but they are unlikely to do so.
“Some of the biggest pension funds we are talking to would come back and make us absolutely swear to secrecy if we were managing a portfolio for them because they still consider there’s a tail risk in terms of if something dramatic [happens]. Bitcoin has had three corrections of 90 per cent. Nobody wants to hear that their provincial pension plan, federal pension plan or company pension plan has an asset that’s down 90 per cent,” he said.