Why the Bitcoin Investment Case Is the ‘Most Controversial’ in Years: Crypto CIO

Why the Bitcoin Investment Case Is the 'Most Controversial' in Years: Crypto CIO

I expect

Travis Kling is the Chief Investment Officer of crypto asset management firm, Ikigai.

Travis Kling is the Chief Investment Officer of crypto asset management firm, Ikigai.

Avery Gerberding

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  • Travis Kling is the Chief Investment Officer of crypto asset management firm, Ikigai.
  • Traditional stocks and crypto are too closely related for bitcoin to be a hedge against inflation, Kling says.
  • Former Point72 Portfolio Manager Breaks Down the Bullish Case for Ethereum.

Bitcoin market dominance hit a four-year low on Thursday.

The cryptocurrency, which was trading at $19,856, had not captured this small a market share since March 2018. Bitcoin represented 39.06% of the $387.85 billion market capitalization, according to CoinMarketCap.

All major cryptocurrencies fell, however, with the industry’s value down about two-thirds from its peak. Ethereum and bitcoin are down more than 70% from their all-time highs, respectively.

However, Travis Kling, CIO of crypto rating management firm Ikigai, says that Bitcoin’s investment record is the weakest in years.

“Bitcoin’s investment case is the hardest I’ve seen in the five years I’ve been paying close attention to it,” the former Point72 portfolio manager told Insider. “It was not a hedge against CPI inflation.”

Maximalists tout Bitcoin as an inflation hedge because of its fixed supply of 21 million and store of value comparable to alternative investments like gold or fine art.

Throughout Bitcoin’s 13-year history, interest rates have been low, potentially only recently testing this narrative. And as economic factors rock the markets, crypto’s strong correlation with traditional stocks has proven otherwise.

“I didn’t expect there to be no correlation, although I didn’t expect the correlation to be this close for this long,” Kling said.

As the Federal Reserve continues to raise interest rates, however, investors appear to be risk-averse. The S&P is poised for three straight quarters of losses, something that hasn’t happened since the financial crisis of 2008. Policymakers expect gains to continue next year, according to the Fed’s latest forecast, with interest rates around 1.5 percentage points from their current level.

“This is one deal,” he said. “It’s Jay’s world right now, and crypto will live and die by it and every other asset on planet Earth,” he added, referring to Fed Chairman Jerome Powell.

There is “multidirectional macro risk” that also has hemorrhaging crypto markets, Kling told Insider, citing challenging macro conditions such as an uncertain geopolitical climate, a looming EU energy crisis and hawkish monetary policies.

If not Bitcoin, then what?

Kling says that bitcoin is “significantly weaker” than the last market cycle, and that as the Fed enters an “easing cycle,” its market dominance may continue to decline.

“When this whole space breaks down again,” says Kling, “my firm base scenario would be that Bitcoin would underperform and in that situation hit new lows in market dominance.”

Ren Yu Kong, DeFi portfolio manager at crypto hedge fund BKCoin Capital, predicted that ethereum could topple bitcoin by market capitalization in the next five years.

“At the beginning of this year, if you asked any investment professional, the de facto answer was definitely dollar average BTC,” the 25-year-old previously told Insider. “If you really want to take a little more risk, you could put some into ETH. I think that has definitely changed now.”

However, Ethereum’s market cap is currently half that of Bitcoin. Bitcoin’s market cap is $372 billion, while Ethereum’s is $162 billion.

Some executives are even more bullish on Ethereum and believe it could overtake Bitcoin’s market cap next year.

In a note to clients in August, Sean Farrell, vice president of digital assets at Fundstrat, said the company was under scrutiny as bitcoin continued to underperform and ethereum moved from a proof-of-work consensus mechanism to proof-of-stake.

“We believe that from both a narrative and a fundamental perspective, Ethereum now has a good chance of overtaking Bitcoin’s market cap over the next 12 months,” Farrell said.

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