Disclaimer: Opinions expressed in this article do not constitute investment advice from Bitcoin Reserve.
Family offices are in charge of not only preserving wealth, but also growing it. In today’s economy with massive unemployment, insurmountable debt, negative growth, and endless increases in the money supply, the options to invest have become much more limited and unconventional.
Effects of the Lockdown Economy on Family Offices
As a result of markets recently taking a turn for the worst, family offices and HNW investors have lost a significant amount of their wealth, especially in traditional markets.
Empaxis is a company which provides frequent data management and operational support for family offices. On April 28th, they released a report titled Family Office Trends 2020 and Effects of COVID-19, which indicates that the recent economic downturn has had noticeable impacts:
- There has been a loss of capital held by ultra-rich individuals & families since 2019, from $8.7 trillion last year to $8 trillion in 2020.
- The United States lost 500,000 millionaires in March 2020 after reaching a record high number of millionaires (11 million) in 2019.
- As of March 18, 2020, there are 58 fewer billionaires than there were at the same time last year.
Empaxis also stated,
“The sharp decline in global equity markets has taken a toll on global fortunes, and COVID-19 and subsequent market losses will affect how family offices operate and invest.”
Aside from that, according to a UBS survey from 2019, given anticipation of a downturn and market volatility in 2020, 42% of family offices began increasing cash reserves. But, is cash a safe place to be right now?
According to billionaire hedge fund manager Paul Tudor Jones, the answer is no. Recently, he stated,
“We are witnessing the ‘Great Monetary Inflation’ — an unprecedented expansion of every form of money, unlike anything the developed world has ever seen.”
Looking at the last three months of the US dollar, the world’s reserve currency, it has gotten drastically weaker:
Jones also recently bought bitcoin, allocating approximately 1-2% of his portfolio. On this topic, he stated,
“The best profit-maximizing strategy is to own the fastest horse”, then added, “If I am forced to forecast, my bet is it will be bitcoin.”
This strategy for a wealthy investor or family office investing a small portfolio allocation of 1% into bitcoin has also proven to be superior to traditional investing, as you can see in the chart below:
Bitcoin is Being Taken Seriously
Bitcoin has faced harsh criticism since its inception, being called a fad, a bubble, a ponzi scheme, and much more. Notably, there is even a page on 99bitcoins.com which has a log of 381 different news articles claiming that it will die.
The first article they have on record is from 2010, when bitcoin was only $0.23.
However, with the massive increase of debt and the money supply, bitcoin remains as an alternative to the current system. The best money is the most difficult to produce, this is called “hard money”, and bitcoin possesses this quality.
Even well known companies like Fidelity have created an investment thesis for it. In their thesis, Fidelity’s Director of Research stated,
“An analogy is that investing in bitcoin today is akin to investing in Facebook when it had 50 million users with the potential to grow to the more than 2 billion users it has today.”
Aside from this, other notable public figures and UHNW investors have spoken out about bitcoin’s potential such as Jack Dorsey, billionaire and CEO of Twitter, saying,
“The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin.”
But, what gives bitcoin so much potential? Up until its creation, the world had only one option to use as money; fiat currencies. Bitcoin is humanity’s first competitive option to these currencies. Let’s compare the two:
- Infinite supply
- Difficult to send large amounts overseas
- Has a proven history of losing value over time
- Controlled by a small group of people in one central bank
- Finite supply of 21 million
- Able to send millions of dollars to any country on the planet within only an hour
- Has a track record of gaining significant value over time; approximately 13,74,900% , and that’s with only an extremely small percentage of the world’s population owning it
- Cannot be controlled or stopped by any person or government
If Bitcoin is So Great, Why Isn’t it Being Used?
The first transaction took place on May of 2010, when a man in Florida paid 10,000 bitcoins for a total of two pizzas. At the time, the value of 10,000 bitcoins was $41. Comparing it to the recent price ranges that bitcoin has had from $9,000 - $12,000, the price paid for those two pizzas would now be worth about $100 million dollars.
It makes more financial sense to save bitcoin than spend it. Conversely, if you were to save your fiat currency, then you would be losing a significant amount of your wealth over time as you can see with the US dollar:
This situation is a perfect example of Gresham’s Law: The economic principle that “bad money will always drive out good”. In other words, human beings are more inclined to spend and get rid of low quality money, while saving high quality money. This can also be observed in ancient Rome when citizens were more inclined to spend their clipped (inflated) coins, while saving their coins which still had the full amount of gold.
Eventually, it is reasonable to say that as more people continue to buy bitcoin, it will then become a unit of account, and finally a medium of exchange.
A Family Office’s Concern About Bitcoin: Risk
The fiat currency that you hold is actually much riskier than bitcoin. Why?
Bitcoin cannot be inflated, while fiat always will be. Fiat currencies come and go throughout history, while bitcoin cannot be stopped or controlled by any government or individual.
If you’re wrong on bitcoin, you only lose what you put in. However, if you’re right, then the upside is immense to say the least. In other words, if bitcoin does indeed become the world’s reserve currency, at whatever point in the future this may be, the amount of capital you put into bitcoin will have gone parabolic.
The anonymous creator of bitcoin, Satoshi Nakamoto even remarked on this topic:
“I’m sure that in 20 years there will either be very large transaction volume or no volume.”
Bitcoin has existed for 11 years now and has dramatically increased in value since the time of Satoshi making that statement. Additionally, with Deutsche Bank even conducting a study comparing the adoption rate of the Internet vs. cryptocurrencies (bitcoin obviously being the most dominant), the outlook is extremely promising since the rates are nearly the same.
Globally, the world is $255 trillion in debt.
We are in the beginning of what is looking to be like the most major financial crisis that the world has ever witnessed. Bitcoin has gone from being something that is laughed at, to being a form of money which billionaires are purchasing, and which major financial institutions are studying.
Family offices now have a choice; to stay in the collapsing traditional financial system, or to evolve and adapt for the future.