There is a new institutional asset class that could triple in value in 2019.
That is a bold statement. It’s not something you hear every day, if ever.
This is partly because, in U.S. dollar terms, institutional asset classes are routinely valued in the hundreds of billions — or even trillions.
It’s really hard to move the needle for a tripling in value when you are talking about a basket of assets that big.
The total market value of U.S. government debt, for example, is more than $21 trillion according to the Federal Reserve Bank of Dallas. That is basically as big as it gets. The estimated value of all the gold in the world, by comparison, is around $7.5 trillion.
The new asset class we are talking about is far smaller, weighing in at just $111 billion as of this writing.
Still, a “triple” would take this new institutional asset class to $333 billion, or roughly a third of a trillion. That is nowhere near U.S. government debt territory, or even gold territory. But it isn’t small potatoes, either.
If you haven’t guessed by now, we’ll spare you any further suspense. The institutional asset class we’re describing is Bitcoin.
As we mentioned, the total value of Bitcoin, as of this writing, is around $111 billion — and could conceivably triple by the end of 2019.
“Wait a minute,” some of you will say. “Since when is Bitcoin an institutional asset class?”
To quote Will Ferrell in Anchor Man, being dubbed an “institutional asset class” is kind of a big deal.
So, who would bestow such a sober, respectable label on Bitcoin, an upstart cryptocurrency that, according to critics and skeptics, should have been dead, abandoned or written off as a fad by now?
It wasn’t us. Morgan Stanley did it.
You know, the Morgan Stanley that stands tall today as one of the premier white-glove investment banks. The Morgan Stanley that traces its heritage to James Pierpont Morgan, the larger-than-life banker who single-handedly saved Wall Street from oblivion in the Panic of 1907.
On Oct. 31, Morgan Stanley published a report called “Bitcoin Decrypted: A Brief Teach-In and Implications.”
In that report, Morgan Stanley researchers dubbed Bitcoin a “new institutional asset class,” and said the label has actually applied for a while now.
When the financial press focuses on cryptocurrencies at all, they mainly focus on how quiet Bitcoin has been, and inevitably remind readers how much BTC has fallen from its December 2017 highs.
But they don’t focus on the specific reasons as to why Morgan Stanley has dubbed Bitcoin a “new institutional asset class” — and why it’s a wholly legitimate argument.
Those reasons are incredibly bullish for Bitcoin — in terms of what is happening behind the scenes, not immediate price action — and include factors like:
- Major financial institutions rolling out “crypto custody” solutions for Bitcoin — including Fidelity, one of the giants of Wall Street — making it easier for institutions to purchase and hold cryptocurrencies.
- A steady rise of crypto assets under professional management, with more than $7 billion worth of crypto being held by professional money managers at last count.
- The endorsement of crypto assets as a legitimate investment opportunity by the endowment funds of Yale, Harvard, Stanford, and MIT, all of which have directly or indirectly invested in cryptoassets.
- The rising bullishness of top-tier venture capitalists and Silicon Valley on the whole, with the U.S.-based crypto startup Coinbase recently raising funds at a valuation of $8 billion.
There is further evidence that institutional players are quietly accumulating Bitcoin. This is one reason the overall volatility has fallen so much.
Morgan Stanley’s report argues that — as we have been saying in our monthly Crypto Decoder newsletter for a while now — there is a hand-off taking place in which the primary ownership of crypto assets, in total dollar terms, is switching from retail investors to institutions.
This makes sense because, while retail investors vastly outnumber the total number of institutions, the institutional players have far deeper pockets. For example, the collective endowments of just six of the big-name universities that have invested in crypto top $108 billion.
As for the “tripling in value” call, that comes from crypto billionaire and ex-macro trader Mike Novogratz.
“Bitcoin has to take out $6,800,” Novogratz told the London-based Financial News, “and after that we could end the year at $8,800 to $9,000.”
Novogratz then added: “By the end of [first quarter 2019], we will take out $10,000. And after that, we will go back to new highs — to $20,000 or more.”
We aren’t piggybacking on a call from Novogratz. He sees the same things we see — which, again, we’ve been talking about for a while now. While Bitcoin has been quiet on the surface, powerful behind-the-scenes forces are marshaling in its favor.
What Bitcoin needs is an upside breakout from the increasingly tight range it has traded in for months now. You can see this via the chart below:
If institutions are quietly accumulating Bitcoin — and we see multiple pieces of evidence for this — an upside breakout in the $6,800 to $7,000 range could force them to step up the pace of buying, adding more aggressively to base positions as a runaway upside trend threatens to get away from them.
Another major factor in Bitcoin’s favor is the increasingly popular view of BTC as a form of “digital gold.”
As we head into overall circumstances where gold is poised to rise — geopolitical concerns, rising debt concerns, inflation worries — Bitcoin could harness those same trends to rise even faster.
Then too, while Bitcoin is still the king of cryptoassets, unchallenged in market cap and percentage of crypto market share, what is good for BTC could also have a knock-on effect of being good for other cryptos.
The crypto revolution is real, and the rollout of new technology upgrades and use cases will underscore that point in 2019.
If you put all of this together with a sudden loss of faith in central banks — the natural adversary of cryptocurrencies — as inflation worries and sovereign debt fears return to the forefront for the first time in a decade, it’s not hard to see a tripling of Bitcoin taking place.
| Richard Smith, PhD|
CEO & Founder, TradeSmith