Brilliant Billionaires Keep Buying Bitcoin

By John Banks

When smart people look at Bitcoin, they wind up buying it. This seems to be happening with clockwork-like regularity now. It feels like every other week or two, if not every other day or two, some new individual or entity, known for excellence in their domain of expertise, is buying BTC.

The latest example of this is Stan Druckenmiller, a retired multi-billionaire hedge fund manager known for having one of the greatest money management track records of all time.

While handling billions in assets for George Soros, and simultaneously for his own fund, Druckenmiller achieved better than 30% per year compound annual returns, on average, with no losing years, over the course of roughly 30 years.

To pull that off with a small account would be impressive. To do it with tens of billions is stunning. And Druckenmiller did not do it in the manner many would expect.

He specialized in exploiting financial crisis events, for example, and by his own admission probably made more on the bearish side than the bullish side of markets. (Although, to create a track record like that, you have to show routine flashes of brilliance as both a bull and a bear.)

Now Druckenmiller, who has long been a fan of gold, is buying Bitcoin.

“Bitcoin could be an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money,” Druckenmiller told CNBC. He also acknowledged that Bitcoin, in terms of price appreciation, looks far more attractive than gold.

“I own many more times gold than I own Bitcoin,” he said, “but frankly, if the gold bet works, the Bitcoin bet will probably work better because it’s thinner and more illiquid and has a lot more beta to it.”

We would quibble with calling the Bitcoin market thin and illiquid, but we know what he is driving at.

The Bitcoin supply is predetermined, and expands very slowly at a predetermined mathematical rate, and at a certain point will stop expanding permanently. That makes the Bitcoin supply curve a nearly flat line, whereas the demand curve is more like a 45-degree angle.

The only way to address the supply-demand imbalance, with demand for Bitcoin rising steadily as supply stays flat, is thus to see an upward adjustment in price and market cap. That speaks to one of the chief differences between gold and Bitcoin today: Gold as an investable asset already has a supply measured in the trillions, whereas the Bitcoin supply is still measured in the hundreds of billions.

When the Bitcoin market cap has run into the trillions too, making it comparable to gold, the price will calm down.

As the price-per-unit reaches a rough level of supply-versus-demand equilibrium, with the vast majority of Bitcoin held in permanent savings accounts rather than traded, it will become the destiny of the Bitcoin price to become as boring as the Swiss franc. But it will take a while, and the full breadth of a spectacular upward journey, to get from here to there.

For those who have been with TradeSmith Decoder, none of this is new. It was all laid out for subscribers, with detailed analysis and explanation, over the course of 2018 and 2019. 

Still, it is nice to see Wall Street catching up.

JPMorgan analysts came out with a new research note on Nov. 6, for example, showing that institutional inflows into a popular Bitcoin trust vehicle came side-by-side with outflows from popular gold ETFs. Big players are buying Bitcoin, in other words, even as they sell off a portion of their gold holdings to do so.

If Bitcoin continues to perform as an “alternative currency” competitor to traditional gold, the JPMorgan research note opines, then the Bitcoin price “would have to rise 10 times from here to match the total private sector investments in gold via ETFs or bars and coins.”

Yep. Sounds about right.