I think the Bitcoin-sphere is pretty preoccupied with the news that Tesla has taken a $1.5 Billion position in Bitcoin, and don’t get me wrong, it’s amazing news! It’s validation for a lot of the beliefs many of us HODL’rs have had for years.
If the richest man in the world is willing to convert that much of his balance sheet into Bitcoin, he clearly knows something; since he already has all the money globally, why would he care? Because he realizes the power of this savings technology.
We’ve moved on from retail being the sole backer and hodlr of Bitcoin. Sure early Bitcoiners even and miners even turned into companies. This was still an insular trend, but then in the last 4 years, we’ve seen institutions like fidelity and grayscale jump in, then we saw Microstrategy jump in, in a big way laying the foundation for the corporate to Bitcoin.
Private and public companies are starting to jump in, with Tesla being the biggest PR fish. I’m pretty sure nation-states and local governments are taking positions, mining to actively talking about acquiring Bitcoin.
The hurdle rate
Bitcoin is still a sub $1 Trillion asset class, and there’s still plenty of upsides before volatility is reduced to a point where it can be a medium of exchange! This attractive price appreciation, when annualised, is always what is going to attract investors in the near term.
More people find wealth in Bitcoin, more will rush in, and eventually, the returns will be arbitraged away!
So what would keep people in Bitcoin and maintain the demand when buying only increases the price at 2 or sub 1% ranges?
My idea would be the growth of the lending market.
The maturing of the lending market
Eventually, all this saving and HODL’ing will have to reach a point where the capital need to be out to use and fewer people willing to part with their Bitcoin; how do you convince them?
By driving up yields!
Currently, the BTC lending market is around 6%. As more capital is locked into Bitcoin, to make use of it in a tax-efficient way, it would be prudent to go into the lending market.
As more people start to leverage, their Bitcoin and others want a better return; these markets will grow, sucking in even more capital.
Here comes asset repricing
Eventually, bond market investors will look at the shitty negative-yielding debt or debt yielding up to 100 bips and think this trade a waste of time.
Let’s move some of the trillions stuck in the Bond market with no yield into Bitcoin. This helps suck out the malinvestment in debt instruments can help normalise the bond market.
This means bond interest rates need to rise to keep capital out of the Bitcoin black hole.
Eventually, equity investors will look at the 10% APR they get on the S&P 500 minus inflation and see that Bitcoin is the better trade! Massive flows of index funds will move into Bitcoin.
Then equity traders will see the point of buying shares with a PE ratio of 50,60,70, 1000 when they can buy Bitcoin. Sucking out more capital out of this trillion-dollar market
This will help destroy zombie companies; it will drive better efficiency in the market. Those companies that attract capital out of BTC would need to have a reasonable PE ratio higher than the eventual declining hurdle rate of BTC.
I am not saying this WILL happen, but how things are going and how bad the debt and mispricing of assets make sense to me. BTC could be not only a measuring stick of value but a way to help suck out the poisonous unit bias that plagues the fiat systems.