key takeaways
- Cathy Wood Says Institutions May Be Taking a Step Back from Crypto
- He believes that he will allocate more to bitcoin and ether if he takes the time to study the crypto space
- I believe she may be too optimistic, that the crypto industry has suffered and may take longer to recover from
Crypto is in a bad place right now.
The most worrying development coming in over the past few weeks – and I think you’ll agree, there have been quite a few – is probably what matters for the industry’s reputation going forward.
which institutions are going to put Bitcoin Now on their balance sheet? Which pension funds are going to move to digital assets? FTX Interruption (which I have written extensively about Here) is so high-profile and jarring that it seems delusional to expect anyone involved with traditional finance to go into space. Is the damage irreparable?
Cathy Wood hints at rolling back institutional steps
On this note, I thought of Kathy Wood, founder of Arch Invest. Interview Was telling last week with Bloomberg. Long known for his ultra-bullish views on all things bitcoin, he also reiterated in the interview his belief in a bitcoin price prediction that he believes will be worth $1 million per coin by 2030. Will happen.
This was not surprising, nor was it completely unexpected. Wood is adamant that bitcoin will change the macro landscape in the long term. It has positioned itself extremely aggressively in the market, betting on riskier tech stocks, bitcoin and other assets that are struggling amid the transition to a new interest rate paradigm – as the performance of its flagship ETFs shows below. Is:
However, I thought there was something more remarkable in his interview. “However, I think one thing that will delay is probably institutions stepping back and saying, ‘Okay, do we really understand this? he said.
This points to a great danger here. All throughout the pandemic, one of the things that accelerated most for bitcoin was the trend of institutions pouring into the space. Tesla was ETF Chat. It was grayscale. There were public mining companies. Coinbase was floating on the stock exchange. Hell, even El Salvador was declaring bitcoin legal tender.
But now that the low-interest environment has taken off, and liquidity is being sucked out of the economy, bitcoin and crypto are facing something they’ve never faced before – a pullback in the broader economy.
Let us not forget that bitcoin was launched in 2009 during the biggest bull market in history. This has not yet been tested in the midst of a bearish macro climate, and so this is all unprecedented. And against this test, crypto is straining.
BlockFi, Celsius, Voyager, Three Arrows Capital, and all the other bankrupt firms now joined by FTX have also portrayed crypto in such a bad light that it’s not surprising to hear analysts warning of a pullback in institutional adoption. Wouldn’t it be more surprising if it weren’t?
optimism
I should note that Wood also added that he thinks bitcoin is “smelling like roses” coming out of all this. While I certainly wouldn’t go that far – tarnishing the reputation of the entire industry if you ask me – I do see where she’s coming from.
But while bitcoin may have no counterparty risk, and is therefore theoretically free from the implications we see in centralized companies like FTX, this is the real world. And in the real world, it requires centralized companies – not to mention institutions – for the average citizen to access.
And until greed, reckless leverage, naive risk management, and outright fraud (not to be named) continue to exist in the industry, bitcoin will never gain any significant traction in the mainstream financial space. After so many high-profile blow-ups, institutions will be much more cautious about investing in the space. Regulation is getting tighter. Returns are no longer through the roof.
Which is why I disagree with the optimistic tone that Wood sets later in the interview:
“And once[the institutions]really do the homework and see what has happened here”, Wood said, “I think they will be more comfortable going to bitcoin and maybe ether as a first stop, because they Will understand it more”.
For me, understanding bitcoin more also comes with the understanding that it continues to trade as an extremely high-risk asset, which is no longer in a zero-rate environment. While the long-term vision for bitcoin may be to be a coveted inflation hedge, it is not where it is right now – something many asset managers will realise.
Crypto has also put a sour taste in the mouth of anyone who has touched it this year. FTX is just the latest embarrassment for the industry, as the world watches with a mixture of pity and disgust at the smuggling. Against this background, the reputation of the entire space has suffered.
And as interest rates rise, life crises loom large and data continues to point to a struggling economy, it will take a little longer for the crypto party to resume than Cathy thinks.