As crypto currency gains further traction in the global marketplace, do institutional investors have a fiduciary responsibility to examine its potential?
Perhaps the answer lies in Bitcoin’s performance relative to other, more traditional asset classes, suggested Elisabeth Préfontaine, founder of Octonomics, at an event hosted by the Global Risk Institute in Toronto on Wednesday.
“When we look at the current monetary system we live in there’s US$17 trillion of negatively yielding debt. That’s about 30 per cent of global debt. So late-cycle Keynesian economics have served us negative interest rates to that scale. It’s a trust issue. And Bitcoin is in many ways offering an alternative where there is algorithmically maintained trust that’s offered as an alternative.”
With so much negatively-yielding fixed income floating around the world’s market, institutional investors with a fiduciary obligation to fulfill cannot ignore this fast-growing asset class, she said.
“I think as financial professionals, it should be part of our fiduciary duty to consider these new elements because if I have a bond from Austria that’s an 100-year bond and it’s yielding negative 0.3 or negative 0.5, the only way I make money on this is by selling to someone else more negative,” she said.
“So if I’m willing to lose 0.3 per cent, why not invest in something that is a completely different ecosystem that is both scarce and expensive, the same characteristic as gold, except that it’s digitally native, programmable . . . and 20 years from now, maybe we’ll be streaming money, the pure definition of cash flow.”
Regardless of whether they want to take on the asset, the system of Bitcoin is radical and investors need to delve much deeper in order to fully understand it, she said.
“Bitcoin is so bold that it challenges the very basis of our accounting system,” she said.
Importantly, she stressed the idea that Bitcoin is a singular phenomenon that can’t really be replicated. It’s growing in solidity, she added, noting every day the concept doesn’t die, it becomes stronger.