More money has been lost because of four words than at the point of a gun. Those words are ‘This time is different.’
― Carmen M. Reinhart, This Time Is Different: Eight Centuries of Financial Folly
That cautionary quote is to offer a counterpoint to everything that follows. Take it in stride...
The latest bull market in the cryptoverse started in October of 2020. Since then the price of Bitcoin has blasted off, going from just above $10K to an all time high just under $65K on 14 April 2021. Even with the drawback in the few days since then, prices are still at what would have once been considered ludicrous not too long ago. The magic internet money now stands as the proverbial middle finger to many pundits.
While many consider these sorts of pullbacks and price stabilizations healthy, price isn't the best indicator. So let’s cut to the chase, here’s why cryptocurrency and investing in it is now mainstream:
Grayscale
The OG investment house in cryptocurrency launched the Grayscale Bitcoin Trust on 25 September 2013. Their flagship product now has $38 billion dollars under management. What’s more, they have 13 other active offerings that allow people to get exposure to not just Ethereum, but even what were once considered obscure alt-coins by outsiders such as BAT, FIL, LINK, MANA and LPT. There’s good indication they aren’t stopping there. Grayscale has formed 18 other entities, presumably for planned offerings.
For a long time, these vehicles were the only tradable offerings which gave investors a way to buy crypto like a stock while not having to worry about custody issues. My guess is that we’ll see the formal launch of new investment options from them in the coming months. Perhaps Grayscale is waiting on word of their BTC ETF application with the SEC.
The First Bitcoin ETF
Launched on 18 February 2020, the first Bitcoin ETF is now live, trading on the Toronto Stock Exchange. In its first week, the Purpose Bitcoin ETF gathered almost $600 million in assets under management. Bitcoin was trading just under $52K that day, and now that the ETF has a little over $1 billion in AUM, it would seem that investor demand for it only grew since launch.
Morgan Stanley is All In
On 17 March 2021, CNBC broke a report that Morgan Stanley would become the first major US bank to start offering bitcoin investments to its high-end clients. CNBC got their hands on some internal memos to its financial advisers that new investment funds it was starting would become available for their wealthy clientele. While it’s only for accredited investors - and not just the bare minimum of accreditation, the article cites pressure from clients as the reason for the new offerings.
There were restrictions on this. The firms who sell these crypto-products to their clients needed to have $5 million with Morgan Stanley and have been with them for a minimum of six months. Minimum investments were $25K, but it would seem that nobody wanted the minimum. In the first two weeks, Morgan Stanley saw almost $30 million raised from 322 investors.
Additionally, Morgan Stanley has invested in companies within the crypto-sphere. They participated in a $200 million investment round in NYDIG, a company that helps other large businesses invest in cryptocurrency. Three of Morgan Stanley’s mutual funds hold significant shares of companies involved in cryptocurrency. MicroStrategy, a company known for pushing the use of Bitcoin as a treasury management tool, has almost 7% of its shares outstanding owned across the Morgan Stanley funds.
Old Man Mellon Enters the Arena
BNY Mellon isn’t a household name, but it is America’s oldest bank. The reason why most people don’t know it is that they are more of a bank for other banks. They do things like facilitate trades, offer security custodial services and generally embody the role of big, evil, monolithic bank (although much more quietly than Goldman and Morgan Stanley). And if you don’t have a sense for how big BNY is, they have $41.7 trillion (yes, with a T) under custody and $2.2 trillion under management.
On 11 February 2021, BNY announced the creation of their Digital Assets unit. Citing growing client demand, their services will allow crypto investments to pass through the same rails as traditional securities. This effectively stages the infrastructure other banks, lending houses and investment firms will need to offer their clients crypto-investments because many of these firms will already be using BNY Mellon. This is probably the only data point needed to solidify crypto’s status as mainstream.
BUT WAIT! THERE’S MORE!
These are just a few examples. What wasn’t mentioned were big news items like the Coinbase IPO (too obvious) or Tesla’s $1 billion investment into Bitcoin. News like the insurance giant Mass Mutual’s $500 million bitcoin investment barely registers against some of these other points. Do I need to mention anything that PayPal and Square have done?
And we only briefly touched upon Michael Saylor & MicroStrategy’s massive move into bitcoin with their corporate balance sheet. They have been issuing debt to buy Bitcoin and using it as a primary treasury management tool. The Gospel of Michael Saylor has since been spread to other Fortune 500 companies following a February 2021 summit where he laid out the strategy, tactics, tools and reasons for major corporations to do likewise. The conference was attended by 8,197 people from 6,917 companies. If you want to see what was said, Michael Saylor - who is known for buying catchy domain names, has all of the materials and then some at https://www.hope.com/.
Putting it All together
The last big wave like this came in late 2017, during the previous bull market. Many crypto-converts saw the light and were convinced crypto was going mainstream back then. However, that was during the ICO boom. It was still the wild west. Many of those projects went extinct. The robust ones - the legitimate ones - are now the top tier altcoins that make up many crypto-investors’ portfolios. What many of us thought was going to happen in 2018 is happening now.
Crypto infrastructure is being fleshed out. Decentralised finance, which wasn’t even on the radar in 2017/2018, now has TVL levels above $60 billion. Chainlink has made major strides in solving the oracle problem. The Graph and Dune Analytics are making blockchain data more accessible. We’ll be seeing many large corporations adopting Michael Saylor’s playbook with their balance sheet later this year as they digest its contents and put into place the accounting controls necessary. China is beta testing a central bank digital currency (CBDC) and the Federal Reserve has active research projects into creating a digital dollar.
What we’re seeing happen right in front of our eyes is something I’m going to call a Reverse Hemingway. In Ernest Hemingway’s 1926 novel “The Sun Also Rises” the character Mike Campbell was asked “How did you go bankrupt?”
The response is now the classic line “Two ways, gradually and then suddenly.”
While 12 years might not seem like a long time for a revolutionary financial system to get its footing and take hold, for those of us who’ve been watching it was always a matter of time that seemed to be taking too long.
This begs the question: how will cryptocurrency be adopted? Two ways: gradually and then suddenly.
