Christopher Wood remains ‘extremely bullish’ on bitcoin

Bitcoin hit an all-time high of $58,350 on Feb. 21. (REUTERS)Premium
Bitcoin hit an all-time high of $58,350 on Feb. 21. (REUTERS)
 3 min read . Updated: 09 Apr 2021, 05:31 PM IST Staff Writer

NEW DELHI: Bitcoin represents a legitimate alternative for risk averse capital looking for a store of value, amid accumulating evidence of policies of currency debasement in the G7 world, Christopher Wood, global head of equity strategy at Jefferies, said in a research note titled, Greed & fear.

“Greed & fear remains extremely bullish on bitcoin at the start of the new quarter... This is in part because of the macro backdrop in terms of G7 monetary and fiscal policy. But, as importantly, it is also because of the dramatic supply and demand dynamics continuing to drive bitcoin in the aftermath of last year’s halving and in the context of growing institutional ownership," he noted.

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There are now only 18.7 million bitcoins in existence, and with an estimated 3-4 million lost, there is a total estimated supply of around 15 million.

Jefferies for the first time in December had added bitcoin to its portfolio by selling a part of their gold holdings from their global portfolio for US-dollar-based long-term global investors, such as pension funds.

The brokerage house had allocated 5% to bitcoin on 17 December at a price of $22,779, by reducing the allocation to gold bullion by 5 percentage points.

“The major reason for this allocation was that bitcoin had become investible for institutions with custodian arrangements in place for digital assets," it said in the note.

According to Jefferies, the allocation to bitcoin will be maintained.

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The global portfolio remains dominated, as it has been since its inception at the end of the third quarter of 2002, by the weightings in physical gold bullion and unhedged gold mining stocks, which still account for 45% and 20% of the portfolio, respectively.

The price of the world’s biggest cryptocurrency rose 103% last quarter. Meanwhile, gold bullion prices declined 10% in US dollar terms last quarter.

The total market capitalisation of bitcoin at the end of last quarter was $1.1 trillion compared with an estimated $11 trillion for gold.

One major aspect driving institutional ownership of bitcoin is “hodling" where people hoard bitcoin as a store of value.

“This is also the reason why institutions are now buying bitcoin as an alternative store of value to gold. The world’s 10 largest exchanges now hold less than 2 million bitcoins, with this number declining every month. This is because the hodlers and the institutions are taking the coins off exchange and putting them into so-called cold storage," Wood said in the note.

HODL stands for “Hold on for Dear Life", which suggests that one is holding onto their cryptocurrencies despite price dips.

Wood said that it continued to believe that the blockchain, and the related world of cryptocurrencies and so-called ‘De-Fi’ (decentralized finance), represent an existential risk to the financial services industry on a 10-year view as activity moves elsewhere.

Meanwhile, volatility in bitcoin has cooled off, with the digital asset having traded in a narrow range of $56,134.42-59,060.03 over the past seven days. At 1705 IST, bitcoin traded at $58,689.88, down 4.2%, as per data from CoinGecko.

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