Aug 4 • 4M

Institutions Aren't Running From The Bear Market

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Anthony Pompliano
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To investors,

There has been anticipation of Wall Street institutions joining the bitcoin and crypto industry for years. Fidelity started mining bitcoin back in 2014, which was followed in 2018 with the launch of their custody and trading platform. Cathie Wood’s ARK Invest became the first public fund to invest in bitcoin during the second half of 2015.

Since these two pioneers entered the industry, there has been speculation that their peers would quickly follow. While the peers did not follow quickly, we have seen a large increase in institutional investor adoption between 2018 - 2021. There were the first two public pension funds, from Fairfax County, Virginia, who invested in a dedicated crypto venture fund with the understanding that bitcoin would make up ~20% of the fund.

This was followed with the announcement from Paul Tudor Jones, and then Stanley Druckenmiller, that he was invested in bitcoin as part of an inflation hedge strategy. Things accelerated quickly once two of the best Wall Street investors in history publicly acknowledged their bitcoin allocations. The career risk had been removed for portfolio managers across hedge funds and various asset allocators. As long as the best in the business were in the trade, you couldn’t be fired for following their lead.

We saw bitcoin’s price rocket to a new all-time high and all seemed well in the world. But as the macro landscape changed, and the Fed began to implement tighter financial conditions, bitcoin suffered along with all other assets. While this was happening, there was one big question outstanding — why had the world’s largest asset manager not dove into the wild world of bitcoin and cryptocurrencies?

It appears we got more clarity this morning.

BlackRock announced a partnership with Coinbase to allow investors the ability “to manage their portfolios and conduct risk analysis on investment decisions.” The announcement states that this partnership will only pertain to bitcoin initially and the two companies will look for client demand to determine if it will expand to other crypto assets.

This partnership is a big deal, not because of what is happening, but rather because of what it signifies. The world’s largest asset manager is announcing a partnership with the largest publicly-traded crypto exchange after bitcoin has fallen approximately 70% from the all-time high of $69,000. Those who are bitcoin-native understand that the real value is captured during bear markets. It now appears that large institutions like BlackRock understand that as well.

If the institutions aren’t leaving during bear markets, then the market outlook for bitcoin over the medium to long-term is quite compelling. A BlackRock spokeswoman told the Wall Street Journal that the Coinbase partnership was part of their long-term cryptocurrency strategy. That isn’t exactly something that would have been expected 2-3 years ago.

BlackRock wasn’t the only institution with news this morning either. Fairfax County Retirement Systems CIO Katherine Molnar announced that the pension plan has received approval to invest $70 million in a pair of yield farming strategies. When asked why the team was leaning into the crypto opportunity now, Molnar told the Financial Times:

“Some of the yields that you’re able to achieve in a yield farming strategy are really attractive because some of the people have stepped back from that space.”

This translates to the classic theory of being greedy when others are fearful. With that said, there is immense risk still associated with the bitcoin and crypto industry. There are few other assets that can rise and fall with the level of volatility that is commonplace in crypto. There have been previous problems with a lack of disclosures or lack of regulation. And, of course, there are plenty of unknown risks that are difficult to identify.

But that isn’t stopping the institutions from participating.

The sophisticated investors understand that the short-term price movements are likely noise. They are continuing to invest capital, build products, and strike moat-building partnerships. These large institutions have the balance sheets to weather the bear market in crypto or the recession in the macro economy. They aren’t worried about what happens today, tomorrow, or next week. This is the 10+ year strategy being laid right before our eyes.

It is rare to live through the birth, and subsequent scaling, of a new multi-trillion dollar asset class, but that appears to be what we are doing now. Timing is everything in investing and we seem to be quite fortunate.

Hope each of you has a great day. I’ll talk to everyone tomorrow.

-Pomp


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MicroStrategy Shares Surge as Michael Saylor Puts Full Focus on Bitcoin: MicroStrategy stock is up nearly 15% on Wednesday, helped by a modest rally in bitcoin and news late Tuesday that Michael Saylor is stepping down as CEO to become executive chairman. The software company's president, Phong Le, will become CEO. The management changes will allow for the company's enterprise business to have the full focus of the CEO, with Saylor devoting his energies to strategies for corporate bitcoin adoption. Read more.


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