Bitcoin – no longer a fad

A minor news item that one may have missed is that El Salvador’s new president, Nayib Bukele, announced (by video link to the 12,000 attendees of Miami’s Bitcoin 2021 conference) that his country would make bitcoin legal tender. The country plans to introduce legislation to make it the first sovereign nation to adopt bitcoin as legal tender, and is partnering with a digital wallet company to build modern financial infrastructure using bitcoin technology.

Bloomberg reports that the largest crypto currency did not rally much on the news. It currently trades at approx. $36,000, well below its $64,000 April peak. However, it is further evidence that bitcoin is gaining wider acceptance.

I have spent the last few months learning about bitcoin and the crypto space, (primarily by listening to podcasts) and while by no ways yet feeling fully educated on the topic, I do have a few interim observations.

  • In the past year more and more institutional investors have taken an interest in or made a small purchase of Bitcoin.
  • There are large constituencies of bitcoin holders and “HOLDLers” (“hold on for dear life” irrespective of the price volatility – hence the acronym), who are far removed from the traditional institutional financial markets.
  • Many of these owners of Bitcoin, which has a finite number of coins to be issued (or “mined”), consider it an antidote for what they see as constantly devaluing paper currency. Many who felt they have never benefited from the traditional financial markets, now feel empowered (whether rightly or wrongly so).   
  • The infrastructure and technology to hold and custody Bitcoin and otherwise protect its owners from fraud and human error (such as forgetting passwords) – has greatly improved.
  • For a country like El Salvador, which receives much of its gross national product in the form of remittances from nationals working in the US and elsewhere, Bitcoin is easier and cheaper to transfer, with traditional remittance services often charging up to 10%. The country has a cash economy with 70% of its citizens not owning bank accounts or credit cards.  
  • We believe that many of bitcoin critics, who have been educated in the ways of the traditional financial markets, are not completely aware of the degree of acceptance of Bitcoin. According to the NY Times, while only 14% of American adults own bitcoin, another 20% plan to do buy some this year.

So in closing, while the total bitcoin outstanding value is still relatively small, at only a third of the market capitalization of Apple ($700 billion versus $2.1 trillion), we believe that it is no longer a fad, and regardless of one’s views, should no longer be ignored.

Norman H. Chait, CFA, Managing Principal, Nardis Advisors LLC,

June 7th, 2021

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Sources

Bloomberg. (7 June 2021) E-mail blast “5 thing to start your day.”  

McCormack, Peter , “What Bitcoin did”, numerous podcasts, April-June 2021 https://www.whatbitcoindid.com/

Griffith, Erin. (5 June, 2021). New York Times. “Thousands descend on Miami to Glorify Bitcoin” https://www.nytimes.com/2021/06/05/technology/miami-worship-bitcoin.html

Sigalos, MacKenzie. (5 June, 2021). CNBC. El Salvador looks to become the world’s first country to adopt bitcoin as legal tender. https://www.cnbc.com/2021/06/05/el-salvador-becomes-the-first-country-to-adopt-bitcoin-as-legal-tender-.html

Disclaimer: Nardis Advisors LLC (“Nardis”) is a Registered Investment Advisory Firm regulated by the U.S Securities and Exchange Commission in accordance and compliance with applicable securities laws and regulations. Nardis does not render or offer to render personalized investment advice through this medium. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and Nardis.

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