Commentary from the U.S. Core Value Equity Team on Cryptocurrencies.
January 15, 2021
The team acknowledges that Bitcoin is now considered a real asset class, however as core equity investors the team does not consider Bitcoin an investable option or an asset class that fits within their investment framework which is to invest in sound businesses that can generate compounding Cash Flow growth.
The team views Bitcoin as a currency alternative for those with skepticism around currencies, or as a gold/commodity alternative, but without an underpinning physical asset, economic indicators (i.e. GDP) or other fundamentals that can be used to measure or drive value.
Bitcoin has seen adoption and coverage from a number of real investors recently (asset managers, U.S. banks) which theoretically makes it more viable now than in the past and provide ample liquidity, although concerns around the legitimacy of some of the sources of capital flowing into these assets (i.e. terrorism, proceeds of crime) still exist.
The team also believes that some of the recent run-up in Bitcoin is a consequence of the high levels of cash/dry power on the sidelines with investors globally, and investors looking for cash alternatives. However, it’s very important to note here that Bitcoin is not an alternative to cash instruments, and unlike cash or cash alternatives it is a very volatile asset with no underpinning asset value.