Ray Dalio, Bridgewater Founder: My thoughts on Bitcoin

Original title: "Written by Ray Dalio: My Thoughts on Bitcoin"

By Ray Dalio, founder of Bridgewater

Original translation: Moni, Odaily planet

I wrote this article to clarify my views on Bitcoin. Please pay attention to what I have stated in this article, because it is not from the media, but from my own opinion, so I think the content of this article is reliable. What I've found is that most of the people who want to promote Bitcoin are trying to find a narrative, while the people who are against Bitcoin, the scared few who are cowering in the corner, have a different narrative. As with most things I comment on, the truth is that Bitcoin has both advantages and disadvantages, so I wanted to be as accurate as possible in my understanding.

Before I begin, I want to reiterate that I am not Bitcoin and cryptocurrencyExperts, so I think my opinions should not be too high reference value, even feel that I should not publish these ideas. I think one has to know a lot of information to give a valuable opinion on the relevant market, so I wouldn't expect too much from my opinion. Still, people asked me to evaluate COINS, so I decided to write this article to express yourself "amateur" point of view, I think I'm the opinion also has some advantages, because sometimes the media would distort my idea, but I want to remind you don't rely too much on my point of view, I am the only requirement is that you read the content of this article, rather than to pay attention to media reports.

COINS, I believe, is a great invention, it is a new kind of currency, through programming, computer system has been running for about 10 years, the people treating it as a means a currency and saving, the currency development speed is really shocking, the whole process is like creating a traditional monetary system on the basis of the credit. The creation of bitcoins is as magical as the creation of alchemy. They both create money from worthless processes.

In the same way that the Medici family made bankers rich by introducing credit products around 1350 AD, Bitcoin has upended the monetary system, made its inventors and those who entered it early very rich, and will most likely make many more symbols in the future. For now, the people who created Bitcoin and brought the new currency to life have made the system work so well that it (along with a variety of competing copycats) has become a digital asset that can replace gold.

There is no denying that the demand for gold has been increasing for quite some time, and there are not many alternatives to gold in the market. This is because debt and money minting are going on at the same time around the world, and I think this trend will continue in the future. In view of the current situation, the global market demand for money, or limited value of assets, is growing, not only that, the market demand is also rising on private assets, the assets and gold are actually very similar, because they can hold their value, but the issue less quantity, the size of the market is relatively small, COINS and other competitive counterfeit currency may be able to meet this demand.

I think,investmentBitcoin is no longer viewed as a speculative investment", they hold it for the short term, but for now, investors hold it for the long term because it has some future value. I think the big question is what practical use it will have and how much demand it will have in the future. Since the supply of bitcoin is limited, one must estimate the price by estimating the demand.

In addition, there must be further clarification about the limited supply of Bitcoin. While the supply of Bitcoin is limited, the supply of other digital currencies is not limited. Many new kinds of digital currencies have emerged, which has triggered competition in the industry, and the supply and competition of these digital currencies will definitely affect the price of Bitcoin and other cryptocurrencies. To tell the truth,I think there will be a better cryptocurrency to replace Bitcoin in the future, because things are always evolving in iterations.

However, due to the fixed nature of Bitcoin, it is doomed to be unable to evolve, so I think there will be other cryptocurrencies to replace Bitcoin in the future, and Bitcoin will be eliminated eventually, so investing in Bitcoin is also a risk. So for all of these reasons, a "limited supply" seems to keep the price of bitcoin high, but it doesn't. For example, there is a limited supply of BlackBerrys, but they won't have much value because they will be replaced by more advanced competitors. However, I still can't figure out why these competitions aren't a threat, and I hope the above half-baked thinking is corrected.

At the same time, I can't help but admire the fact that Bitcoin has stood the test of time for 10 years, and that the Bitcoin network is working well and hasn't been hacked. Nonetheless, for a person with digital assets, cyber attacks are now more frightening than cyber defense, and cyber risk is too much to ignore. Even the Department of Defense cannot guarantee that its systems will not be hacked, so it would be naive to assume that digital assets will not be hacked at this point, which is one of the advantages of physical assets like gold, but also the risks of all financial assets.

In fact,I think our futurefinancialMost likely, the bulk of the system is made up of digital assetsAnd are therefore more vulnerable to sabotage or cyber attacks than current systems. I want to remind you that cyber attacks are happening at an increasingly rapid rate and could threaten the value of traditional financial assets. While bitcoin can be stored offline via a "cold wallet," it's difficult to do that, and few people actually do, so overall, it's a connected digital currency that doesn't offer the level of protection I'd like. Let me just say that if I'm wrong in my opinion, I want someone to correct me.

Of course, there are many other things worth discussing about bitcoin as a digital currency, such as how private it will be and whether its development will be affected by government regulation. When it comes to privacy, Bitcoin doesn't offer as much privacy as people think, since it's a public ledger and a lot of Bitcoins are held in non-private ways. If a government or even a hacker wants to find out who owns these Bitcoins, then I doubt that privacy will be protected in this situation. Not only that, I think if the government wanted to ban Bitcoin, then most people would not be able to use it, and the demand would drop dramatically.

While the idea that the government might invade privacy or block the use of Bitcoin and its competitors is far-fetched, it seems to me that the more successful Bitcoin becomes, the more likely it is. After 1694, when the first central bank, the Bank of England, was established, governments, for all the right reasons, wanted to control money and the right to have the only money bank and credit within their borders. So if you're in the shoes of government officials, it's easy to understand their behavior and thinking. They will never allow Bitcoin (or gold) to be a better option than the money and credit they provide. So I think the biggest risk for Bitcoin is success, because if it succeeds, the government will try as hard as it can to kill it.

Among the reasons I mentioned above, in terms of supply and demand, Bitcoin, while limited in supply, is difficult to predict in the long run because it is a long-term asset. Assuming I'm looking at bitcoin as an alternative asset to gold, convert some of your privately held gold assets into bitcoin and diversify. In this scenario, what would happen if 10 or 20 or 30 or 40 or even 50 percent of the value was transferred to Bitcoin and it was diversified, or if Bitcoin holders wanted to diversify some of their money into other assets like gold or stocks? What would happen if the government imposed a ban? The outcome is obviously unpredictable. So for me, Bitcoin is like a long term that's hard to predictoptionsI can invest a certain amount in it, but it doesn't matter to me if I lose 80%.

This is my impression of Bitcoin as a non-professional. Please correct me if there is anything wrong. Only in this way can we know more about it. In the meantime, my Bridgewater colleagues and I are focusing on other value-holding assets.

It should be noted that Bitcoin in this article refers to the sum of Bitcoin and other competing currencies.

With bond yields already near zero and most of the world's central banks trying to devalue their currencies, it makes sense to look for other stores of value. Bitcoin remains by far the dominant cryptocurrency, and has garnered the most attention in the United States. The price of bitcoin has soared nearly 200% since last October, hitting $40,000 per coin before settling at around $30,000.

Admittedly, Bitcoin does have some attractive properties, such as limited supply, its ability to be exchanged globally, and its rapid growth. However, for now, we do not see it as a viable store of value for large institutional investors in the market due to the high volatility of the currency, regulatory uncertainty and the difficulty of operating it. On the contrary, we think of Bitcoin as more of an option and hope that it will become digital gold, so one of the many future outcomes will be a true institutional acceptable store of value.

Not only that, but when we look at bitcoin, we think it has some of the qualities that we think it has as a store of value, even if it's not a store of value yet. Of course, bitcoin also has the advantages of being similar to gold, such as the fact that because of limited supply, it can't be devalued by additional issuance by central banks. Bitcoin also has the advantage of being portable and being able to transact globally, especially for individuals. Not only that, but it can also be an option for diversification. So far, though, much of this has been more theoretical than tested.

At the same time, Bitcoin faces many challenges, and it will take some time for it to gain acceptance from more institutional investors. Here are three of the most prominent challenges:

1. Bitcoin's price is still very volatile, which means its future purchasing power is still very speculative. In the future, bitcoin's value will fluctuate much more than that of established stores of value, such as gold, real estate or fiat safe-haven currencies.

Bitcoin remains a significant regulatory risk, as it lacks any potential government backing and a long history to provide a baseline for future demand. While tighter regulation is likely to lead to more institutions accepting bitcoin, it could also lead some whales to sell, since government oversight is their top concern.

3. While bitcoin liquidity has now accelerated, it still poses structural challenges at current levels that discourage large traditional institutions like Bridgewater and their clients from holding bitcoin.

For future developments, we predict that the infrastructure of Bitcoin and other cryptocurrencies will continue to mature. Not only that, but the environment we live in will also change. Many government-issued bonds will have lower returns, which will no longer be an option for investors to diversify, and currencies will face greater depreciation risk. All these will promote the development of other hedge assets more quickly. For now, although we would like to be more thorough in predicting the future, there are undeniably many factors that will affect bitcoin, so we can't say we are confident about its future just yet.

This report will analyze Bitcoin from the following three aspects:

- The first is its place in cryptocurrencies and what's driving the recent bull market.

- And then there are the qualities that make bitcoin a store of value.

- Finally, the problems and challenges that Bitcoin may face in the future.

This paper will make a detailed analysis of the above three points. If you want to get the gist of the article, you can skip the bold section and go straight to the rest of the text.

With prices rising sharply, market concerns have been revivedCan Bitcoin?It has become a hot topic of hedging assets

Bitcoin's price surge of 400% in 2020 has brought it back into the spotlight, largely depending on its perceived potential as "digital gold" and as a store of value and potential inflation hedge in your portfolio. Despite the emergence of multiple cryptocurrencies, Bitcoin still dominates the market, so we'll focus on it and discuss whether it could be a potential "digital gold."

Review of the bull market in 2017, when investors interested in COINS is mainly due to the currency has certain speculative, results cause return on investment and currency monetary market share fell sharply, the reasoning behind this is probably because the ICO wave has attracted a large part of the speculative fever, speculators buy start-up companies issuing new encryption monetary tokens, the company promises to provide revolutionary decentralized technology and business models.

In contrast, bitcoin outperformed other cryptocurrencies during the 2019 cryptocurrency bull market that stretched through the end of 2020, and its market share is now back to its highest level since early 2017. Bridgewater has spoken to large cryptocurrency market participants and service providers and found growing interest in the idea of bitcoin as "digital gold," which seems to be a key driver of this new cryptocurrency bull market.

The appeal of Bitcoin, which has a limited supply, has been boosted by a flood of new fiat currencies issued by central banks around the world

Bitcoins are somewhat similar to gold, but if they are used directly as a medium for exchanging goods and services, they have very limited uses. However, Bitcoin has the same advantages as gold, such as limited supply and a more stable issuing cycle, so it may not depreciate as fiat currencies do due to central bank issuance. According to Bitcoin's code, the total supply is 21 million, and the issuance rate automatically halves every four years. It is this property that has given rise to the term "digital gold". As the chart below shows, while Bitcoin issuance was high in the early years, its supply is now growing at a much slower rate than gold.

Bitcoin may be particularly attractive to some investors at this stage, perhaps for the same reason that gold has been so popular in the past few years. It's important to note that neither gold nor bitcoin yield an immediate return, but that doesn't seem to matter when yields on other assets are falling sharply.

Gold is one of the few assets that does well during periods of inflation, and investors are likely to consider and plan for it in an inflationary market. In addition, gold has other advantages in an environment of heightened internal and external risks, such as its isolation from any country's political situation. If one does accept the idea that Bitcoin is "digital gold," one can imagine something similar happening conceptually with Bitcoin.

Bitcoin is portable, circulates globally, and can be a store of value

Of course, scarcity alone is not enough to drive demand for an asset, and people need to see bitcoin as a viable asset that holds its value. In fact, there are a number of other cryptocurrencies that may have similar characteristics to Bitcoin, compete conceptually with Bitcoin, and have the potential to become "digital gold." However, Bitcoin's relatively long history, larger scale, and wider recognition and acceptance are some of its obvious advantages, at least so far. For example, while other cryptocurrencies share similar technical features, such as a fixed aggregate supply and emphasis on the concept of "price stability," Bitcoin has significantly outperformed Bitcoin Cash in the market (BCH), Litecoin (LTC) and other major cryptocurrencies such as Monero.Stable currencyIs a collateralized cryptocurrency that is largely tied to the U.S. dollar, and this type of cryptocurrency has also seen strong growth. In essence, however, stablecoins are not a true store of value, but a new form of digital dollars.

Finally, both now and in the future, in addition to maintaining purchasing power over the long term, bitcoin needs to be very easy to trade and buy for a good store of value. Compared with other traditional stores of value, such as gold, art and real estate, bitcoin is much easier to trade, especially for individual holders. In fact, given the digital nature of Bitcoin, it may be the most portable store of value, more convenient than physical cash. And on a geographical scale, as bitcoin exchange services become more available globally, it will be relatively easy to cash bitcoin in most parts of the world, even more so than converting dollars into local currency (except in some places with capital controls).

Whether bitcoin can become a diversified investment option remains uncertain

Bitcoin is less than 11 years old, and there is not enough evidence that it can be seen as a reliable diversified investment in the future, like gold. Nevertheless, we examined the available data on the market to understand bitcoin's role and role in hedging against inflation and portfolio shrinkage. As the chart below shows, bitcoin has generally appreciated in 2021 as inflation expectations have risen, but it seems relatively weak compared to gold, which has long been an inflationary player.

What's more, as the chart below shows, gold has remained a more reliable investment in a shrinking 60/40 portfolio, with decent returns. Bridgewater has been watching bitcoin's performance in a deflationary period since its inception in 2009. However, given the relatively recent development of the cryptocurrency industry, we cannot draw any firm conclusions based on such a small sample size. So far, Bitcoin does offer some benefits as a portfolio diversification option, but this is more a theoretical analysis than a reflection of reality.

Volatility, regulatory uncertainty and an immature infrastructure have slowed the adoption of bitcoin by institutional investors

If the basic purpose of wealth is to retain or increase people's purchasing power over time, we think Bitcoin feels more like an option, but remains a highly volatile and speculative asset. In contrast to existing store of value equivalents in the market, bitcoin is not yet widely used as a savings vehicle or reserve asset, nor are governments or large global institutional investors "truly" involved in bitcoin asset allocation. Even with the recent increase in participation from private institutional investors looking at bitcoin, a significant portion of investors still appear to be using it for short-term speculative trading, rather than as an actual long-term savings vehicle.

While it's difficult to determine the circumstances directly, the chart below shows two ways in which Bitcoin shares are used for savings. Specifically, one is the share of Bitcoin in accumulated accounts, and the other is the share of Bitcoin in "newly active" accounts that are more than five years old. Accumulated accounts are accounts that have only purchased bitcoin without selling any accounts, while "last active" tokens are a mix of long-term investors and tokens that are likely to lose. We see that while the number of long-term bitcoin users has increased since 2018, their total share is still small (around 15%). And while a significant portion of the Bitcoin supply has been inactive for more than five years (over 20%), the bulk of the Bitcoin supply is still in active or semi-active circulation (more speculative trading is recommended).

Another way to try to determine why we are holding bitcoins (either as a deposit of wealth or for more speculative purposes) is to look at trading volumes, which may reflect its relative speculative nature compared to gold. Compared with bitcoin, gold trades as a fraction of total assets outstanding, which is partly because central banks around the world have a large total supply of gold and hold it as a long-term value reserve.

On the other hand, bitcoin trading volumes have surged in recent years thanks to the emergence of high-frequency traders, a booming derivatives market and a proliferation of other tokens that trade with bitcoin. Plus unregulated cryptocurrenciesexchangeDoubts in reported trading volumes have also given the market the illusion of increased liquidity. In fact, this liquidity, in addition to the long-term liquidity risk, is also more representative of the high turnover rate and speculative problems of Bitcoin trading.

Indeed, the growing speculative interest in bitcoin in recent months also illustrates some of the classic dynamics of asset bubbles. Bitcoin options, for example, are currently pricing future earnings, and the results appear to be highly optimistic. As we have analyzed in our previous research, very rapid future Discounting price appreciation is a classic bubble behavior, further illustrating that the Bitcoin market remains highly speculative. Moreover, while the current cryptocurrency market rally is not a bubble so far, there is no doubt some degree of over-leverage involved.

In 2017, for example, the cryptocurrency bull market bubble was driven by retail speculators, and now retail interest in bitcoin is surging again. Margin lending rates have begun to rise on some of the market's leading bitcoin exchanges, a sign that leveraged cryptocurrency purchases are becoming more common. The likelihood of a rapid price appreciation in the future, coupled with widespread bullishness and an upward trend in leveraged trading volumes, suggests the risk of a bubble is real, although as we have written before, the bubble trend can persist for a long time.

All of these factors make bitcoin's price far more volatile than other traditional financial assets like stocks and commodities, not to mention stores of value like gold. There have been many times in Bitcoin's short history when it has been wildly volatile, and many people who own it have largely lost money. While there are times when most Bitcoins make money (as they do now), and sometimes they can make substantial gains, for wealth holders, reducing downside risk is actually more important than ownership. Speculation is more important. Similarly, the current Bitcoin options market has similar speculative characteristics.

Bitcoin has been slightly more volatile since its inception compared to the price volatility of existing wealth stores in the market, but we know that this could change significantly over time. As we have seen in the evolution of other markets, volatility can decrease as the number of investors with different investment portfolios and time horizons grows.

Bitcoin's regulatory outlook is highly uncertain; Generate a two-way risk

Perhaps most importantly, large institutional investors believe that Bitcoin's widespread adoption will depend on regulation. Whether policy makers have created a sensible regulatory environment that helps win trust in certain assets, or investors will become less attractive to others like Bitcoin. Will regulators ban bitcoin outright? While we don't know how regulatory trends are changing, we do know:

(a) Bitcoin will be a growing focus for regulatory policymakers, and

(b) Regulators may take a different approach to regulation.

To this point, just earlier this month, Christine Lagarde, the president of the European Central Bank, said of Bitcoin:

"Currency is a highly speculative assets, but also developed some interesting business, at the same time also appeared some absolutely reprehensible laundering of illegal activities... so must have a regulatory babbitt... this is a globally agreed problem, because if someone escape regulation, must be punished."

Similarly, during her confirmation hearing as U.S. Treasury secretary in mid-January 2021, Janet Yellen noted that "cryptocurrencies are of particular concern" when it comes to financing terrorism, explaining:

"We really need to look at ways to reduce the use and manufacture of cryptocurrency money. Make sure that money laundering is not going through these channels."

We think there are likely to be two main regulatory avenues in the coming year and years:

1. Regulators will restrict the use of bitcoin and cryptocurrencies due to concerns that the use of bitcoin and cryptocurrencies will destroy traditional fiat currencies, thereby cutting off further development of the asset in the current market environment, or

2. Create a regulatory environment that creates more long-term trust in crypto assets, but could also lead to increased market volatility.

In our view, both regulatory paths suggest that the roller-coaster state of Bitcoin prices is likely to continue for some time.

We can see an example of tighter restrictions on China. In September 2017, Chinese authorities banned initial coin offerings (ICOs), a cryptocurrency-based fundraising process, causing the price of Bitcoin to fall 8% immediately after the ban was issued. A similar ban in the United States is less likely, but technically possible. Given that most bitcoin buyers rely on wire transfers and bank debit accounts to move money in and out of bitcoin exchanges, the U.S. could make it impossible for U.S. investors to buy bitcoin for all practical purposes. Here, our main worry is: if in the future have digital currency, the central bank and the bank number monetary circulation soared and become official wealth digital storage, so governments may be more willing to limit the currency as the nongovernmental legal tender substitute, because the currency is likely to be the central bank digital currency into competition.

Of course, even if a blanket ban is not enacted, there are still many potential regulatory constraints that could also severely damage the adoption and market value of Bitcoin. In the past few years, the United States basically to encrypt currencies have an overall supervision direction, the currency is seen as a threat, and a more benign regulatory measures, so people to block chain technology and encryption currency recognition enhances unceasingly, but there are some regulators will encrypt currency as support illegal activities and/or reverse the threats of the existing financial system.

Let's take two examples. The Office of the Comptroller of the Currency (OCC) issued an explanatory letter on the evening of January 4 local time. Which clarify the association of American domestic Banks and the federal reserve can use public settlement blocks chain and a stable currency, which means that the association of American domestic Banks and the federal reserve to be able to run encryption node, and associated stable currency used to allow payment activities, as long as obey the existing laws and regulations, Banks can use the public block chain to verify, store, record and payment transactions. But a month ago, the U.S. Treasury Department's Financial Crimes Enforcement Network (FINCEN) proposed rules to limit the use of unmanaged cryptocurrency wallets, requiring crypto companies to verify the names and addresses of unmanaged wallet users for transactions greater than $3,000. In addition, exchanges are required to submit and store records of transactions involving cryptocurrencies, aiming to effectively ban the use of Monero coins and Zcash, among others."Privacy currency".

Bitcoin and cryptocurrencies are booming given the market's current unregulated "Wild West" landscape, but there are other areas at risk of damaging regulatory action, notably Tether, currently the largest stable currency by market cap.USDT). Tether is currently under investigation by the U.S. Commodity Futures Trading Commission, the U.S. Department of Justice, and the New York State Attorney for issuing billions of dollars worth of USDT tokens that may not have been fully backed by actual dollars. If Tether were to shut down or suffer other significant regulatory penalties, it could undermine the value of all cryptocurrencies, including bitcoin, given the interconnected liquidity of the entire cryptocurrency market.

In addition, regulators could allow more safe-haven institutions to adopt bitcoin, which could still lead to significant market volatility for Bitcoin holders, many of whom are early adopters who strongly identify with the Bitcoin founderIn the hearingCreate anonymity, encryption, and anarchic principles. For example, just after the U.S. Treasury Department's Financial Crimes Enforcement Network proposed rules to limit the use of unmanaged cryptocurrency wallets, there was a sell-off in the bitcoin market, which briefly drove prices down.

In some cases, however, clear regulation could add long-term value to the cryptocurrency market. Compared to the bull market of 2017, the trading infrastructure and managed solutions are now more efficient, liquid and complex in the market, resulting in higher "incentive" institutional participation. We believe this is partly due to regulatory changes as traditional exchanges also begin to accept bitcoin derivatives.

As a result, there has been a recent influx of institutional liquidity into the bitcoin market, so the price spike has been driven by larger transaction sizes compared to 2017, when the bull market was dominated by small and medium-sized retail investors. However, it is worth noting that institutional participation is still low and small, mainly limited to hedge funds and family investment houses, rather than larger traditional institutional investors, who are still small players in the market for cryptocurrency investment vehicles.

In the best case, mature cryptocurrency regulations would safeguard the market and provide greater access to assets, such as Bitcoin exchange-traded funds (BTCETF), which could encourage large institutional investors to increase their exposure to bitcoin. We wanted to understand what a future shift in institutional investor attitudes toward bitcoin might look like, for example, how the market would react if investors moved some of their gold holdings into cryptocurrencies.

The chart below is for illustration purposes only, so it's a little easier to make, and if a certain amount of private gold savings (that is, excluding gold held by central banks) were to move to Bitcoin, it would probably drive the price of Bitcoin up. To be more specific, at the end of the day, we assume that half of the total market value of privately held gold savings is allocated to bitcoin, which means that about $1.6 trillion will be allocated to all bitcoins ever mined. By moving from gold to bitcoin, investors are trying to diversify, which in theory could boost the price of bitcoin by at least 160%.

Of course, we make this calculation assuming there is no problem with liquidity or a market rebound. In fact, that estimate could be considered conservative, since such a large amount of liquidity could lead to a supply crunch that could push the actual price of bitcoin higher. Clearly, there are a number of factors that could influence future price trends for Bitcoin that we haven't seen yet. For example, we don't know when central banks might consider shifting their gold exposure to bitcoin, or when regulators might step up their "crackdown" on bitcoin, but of course that's all hypothetical.

Large institutions that want to hold bitcoin still face structural and operational challenges

In addition to these potential future developments, large institutions that want to hold bitcoin still face structural and operational challenges that challenge its widespread adoption. On the former, although we will not go into all the details here, but to take just one example, institutional requirements for regulation are often different from what we think, and institutional investors are likely to demand more regulation; Bitcoin is an anonymous asset (that is, ownership is determined only by the person who owns the private key), which increases safeguards and insurance considerations for institutional asset managers. At this point, digital custody is still typically more expensive than traditional equities, regulators are working on qualified custodian rules, and the number of underwriters currently in the market to administer digital asset insurance is limited. That said, more and more institutional-level hosting solutions are slowly rolling out, and services and pricing are likely to grow as demand grows.

For large institutions to hold bitcoin in their portfolios, they also need to have enough liquidity to make large transactions without destabilizing the market. At this point, even though Bitcoin is becoming comparable to Bridgewater funds trading in certain markets, liquidity is at an all-time high, so you can see that the market is still very small. We will summarize some investment vehicle comparisons below, based on our assessment of liquidity:

- For investors who can trade cryptocurrencies directly, the total market capacity of cryptocurrencies is now close to 10% of the size of the tradable gold market.

- The market size is even smaller for large asset managers who are only able/willing to access bitcoin through traditional venues (i.e. derivatives, stock markets).

The chart below shows the amount of bitcoin trading that we think comes from real liquidity. From these perspectives, we can see that while reported transaction volumes have been impressive, the actual transaction volume may have been relatively flat. Given this trend, and the fact that the supply of bitcoin is fixed, Bitcoin liquidity is currently tied to its price. Despite the recent price rise, at the current size, it could have a big impact on the market for investors who have relatively small assets allocated to bitcoin. While the gold market is much bigger than Bitcoin, it is still small compared to the U.S. stock market.

Overall, it's clear that Bitcoin is a store of value and has attracted a lot of interest from investors, although there is still some volatility in its price. But we must admit that this financial instrument is only a decade old. In absolute terms, it will be interesting to see how this digital asset evolves relative to the wealth reserves available in the market, such as gold. One of the big challenges for bitcoin in the future may still come from quantum computing, regulatory backlash, or other issues we haven't identified yet, even if they haven't come up yet, but still need to be addressed.For now, Bitcoin looks more like a potential wealth store option for us.

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