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Europe’s biggest crypto fund sees no end to Bitcoin's white-knuckle rally


MUMBAI: Meltem Demirors, Chief Strategy Officer at Europe’s largest crypto asset management firm CoinShares, expects Bitcoin price to rise further in 2021, simply because “there is just not enough Bitcoin to meet the massive wave of demand.”

“I think there will be volatility and cyclicality, but the trend over the next year will continue to be upward, because this is really a supply-demand story,” Demirors told ETMarkets.com in an email interview.

Demirors pointed to the massive influx of institutional investors into Bitcoin over the past 12 months, which has driven demand for the cryptocurrency to stratospheric levels. “The demand is coming from institutional investors, who want to allocate not $10 million or $20 million or $30 million, but $100 million or $500 million or even a billion dollar in one ticket,” she said.

Demirors’ investment firm has seen its assets under management quadruple to $4 billion in a space of four months, as the trailblazing rally in Bitcoins drove institutional and retail investors towards the asset class. Bitcoin has rallied as much as 700 per cent since April to hit a record high of over $42,000 this past week.

On Monday, the cryptocurrency crashed 20 per cent, but has since recovered nearly all of those losses as large investors accumulated the asset at lower prices.

“You bet that every institution, every corporation, every government around the world is talking about Bitcoin. They are having investment committee meetings to talk about allocation strategy, and Bitcoin is definitely part of that conversation at every institution on the street… every single institution,” Demirors said emphatically, highlighting the rising prominence of the once maligned asset class.

Following are the edited excerpts:


How big a moment is this in the history of Bitcoin and cryptocurrencies at large?


Massive! Unprecedented! In March, the world fundamentally changed and people’s mental models of market shifted. Unprecedented amount of money printing, unprecedented amount of institutional failure, unprecedented amount of unrest, unprecedented amount of economic crisis — these are the conditions that Bitcoin was made for.

What we have seen over the last year is a test of Bitcoin’s narratives as an asset class. We have hedge fund managers who are allocating to Bitcoin. We have corporations adding Bitcoin to their balance sheet. It is the fundamental shift in how people view Bitcoin.

What has driven this acknowledgement that Bitcoin is getting from institutional investors?

I was talking to a macro fund manager last week, what he has said to me is “I am looking at my portfolio, my portfolio underperforms this year, where is alpha?” Fixed income is zero, interest rates are zero. Equities? Yes, technology stocks are performing well but core equities portfolios are not performing well. So if you are an asset manager, where you are going to get your alpha from?

So, he said “you know what I did at the end of the year I allocated portion of my fund into Bitcoin and it allowed me to outperform.”

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People need alpha. People need growth. We had a record breaking month in December in the collectibles market. People are buying art. People are buying baseballs cards. People are buying fine wine and watches. People are buying real estate. This is the narrative that is unfolding.

People are looking to get out of cash and into assets that will hold value overtime and Bitcoin is really the ultimate collector’s item.

You know people also say a lot has changed at the custodian level and that has given a lot of confidence to institutional investors. Could you shed some light on what has changed there in particular since 2017-2018?

Yes, I think that is a great point and I think it is a story that goes beyond custody. It is really a story around market infrastructure. If I am a traditional asset manager, I am not going to create an account on CoinBase that is ridiculous.

If I am an institutional asset manager, I am not going to create an entirely new operational infrastructure so that I can participate in new asset class.

Over the last three years all these very niche crypto native venues have now become integrated with legacy financial institutions where traditional market participants are already trading.

It is really about building those bridges between the world where I come from, which is crypto native, and the legacy markets.

Traditional market venues are starting to catch up and they are even outpacing crypto native market venues on the derivative side. In 2019, we did $3 trillion in derivatives volume and in 2020, we are close to $12 trillion and in 2021, we expect to do $25 trillion.

At CoinShare’s capital market desk, in December alone we traded $8 billion in derivatives volume and we are expecting to trade close to $100 billion this year, which is an uptick from last year where we traded around $70 billion. Our assets under management went from a $1 billion to now we tapped $4 billion last week.

It is a very different market but the pace at which it is changing it is not on crypto native venues only, it is also happening on traditional venues, traditional exchanges.

How surprised are you by the scale of this shift and how much of a role has the pandemic played in that?

I am not surprised at all. I would not be working in this industry if I did not believe that this was going to happen. What has surprised me is the speed at which it has happened and look I think part of that is… we have a joke crypto what you will see one year in crypto is like ten years in normal markets.

I think crypto has continued to move at a breakneck pace but other markets have caught up.

If we just look at Bitcoin’s volatility, in 2020 when I met with investors and spoke to them about Bitcoin, one of the big objections we always got was around volatility. People were very concerned about Bitcoin volatility and in particular the extreme fluctuations. Bitcoin is still volatile. But in 2021 and the end of 2020 everything else became much more volatile, so from a relative perspective Bitcoin no longer felt so volatile because other markets had become more volatile.

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I think the story that has really unfolded here is that as markets started to change, people’s psychology also started to change.

I think the way that asset managers and allocators view the world is fundamentally different. The things that they did for the last 40 years are not going to work in this new environment, and so the pace at which change has happened is so rapid.

You bet that every institution, every corporation, every government around the world is talking about Bitcoin. They are having investment committee meetings to talk about allocation strategy and Bitcoin is definitely part of that conversation at every institution on the street…every single institution.

People argue that Bitcoin is emerging as a better store of value than gold. Is it really better than gold?

I am from Turkey where everyone in knows three prices. We know the price of Lira, our currency. We know the price of dollar and we know the price of gold. We recently just added a fourth price. Everyone in Turkey now knows the price of Bitcoin. I feel you on the gold story. It is definitely prominent one.

Look I think part of the narrative here is broader narrative around digitisation. We used to live in very physical world. I remember my grandmother had gold bangles on her arms that were given to her on her wedding and that was sort of like her life savings. It was her store of value and then if the family needed something, she would maybe sell her gold bangle.

But in the world we live in today, I am not going to walk around with the gold bar in my pocket. Even investing in gold, yes I can buy gold on exchange. I can buy gold ETF. I can buy gold miners. But it is very difficult for average person to buy and store physical gold.

It is expensive to store and so Bitcoin is better than gold now because it is digital. It is portable. You can walk around with Bitcoin on your phone and I think in terms of what people want to invest in, my dad invested in gold. I do not invest in gold. No one in my age group is investing in gold. So there is also generational story happening here.

We are about to see the largest wealth transfer in human history from older generations to younger generations and younger generations do not want to allocate to gold. They want to allocate to Bitcoin. They want to allocate to digital assets. Bitcoin is really an asset that was built for that new reality. It is the first digitally native store of value.

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Brent Johnson of Santiago Capital recently said it would not be an easy sailing for Bitcoin going forward, because at some point governments will retaliate. Your thoughts.

Over the last 40 years, we have operated in a world where the US dollar is the reserve currency of the world but I think one of the things that is happening is that we no longer live in a single currency world. At this point I think Bitcoin is simply too large and too widely held to be really stopped. My view, and this is one person’s view, is that this asset class has grown too large and the amount of intellectual capital and human capital that has been invested into Bitcoin ecosystem has grown so large that at this stage it would be virtually impossible to do anything to hamper the existence of the Bitcoin network.

Can Bitcoin help nation states get out of the umbrella of the US dollar, perhaps become economically independent of the greenback?

Yes, I think you are precisely right. I think what is really interesting is that the jurisdictions that are friendly to Bitcoin and crypto innovation, and are seeing tremendous inflows of human capital, financial capital, people starting businesses, I think they have a competitive advantage. We do see nations embracing Bitcoin and cryptocurrencies. I definitely think it will be a trend. One of my predictions for 2021 is, fingers crossed, we will see a nation-state add Bitcoin as a reserve asset that will be my dream.

Coming on the price side of Bitcoin, Raoul Pal of Real Vision recently said he expects probably a 40% correction. Do you see a correction of that scale?

Look, volatility has always been part of the story. We have seen a really rapid rise in price. So if you look at the options market right now, the net interest is on the long side, there are not many people who are shorting the Bitcoin. Most firms and most people that are trading are net long but then people are going to take profits at some time, most people who have allocated to Bitcoin are now in profit I think we will continue to see a run up over the course of the year. The demand we have seen from institutions who want to allocate not $10 million or 20 or 30 but $100 million or $500 million or even a billion dollar in one ticket has increased dramatically over the last 12 months. Yes, I think there will be volatility and cyclicality but I think over this year the trend will continue to be up because this is really a supply-demand story and at the end of the day there is just is not enough Bitcoin to meet the massive wave of demand that we are facing.





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