Digital Asset Capital Management chief executive and co-founder Richard Galvin says 2020 was a “break-out year” for the sector amid an embrace of Bitcoin’s “digital gold” narrative and the broadening adoption of decentralised finance, or DeFi.
That shift in perception was reflected in its Digital Asset Fund returning around 420 per cent last year, while its DAF Liquid Venture Fund returned just under 500 per cent.
Where the growing interest in digital currencies reflects a desire to step outside the traditional central banking system, the adoption of DeFi highlights the flow of capital beyond traditional banking and finance.
The fusing together of capital and technology into programmable money provides innovators with a potentially powerful tool when interest rates are near zero, yields are miserly and central bank engineering of the shape of the yield curve has changed the rules of the banking and finance game.
Investors have been left with no choice but to chase risk in a world devoid of yield.
TINA – There is No Alternative – has become the catchcry for investors pouring into stocks, commodities and digital currencies given the meagre returns on offer at the bank or in bonds.
But nominal yields only tell part of the story. Real, or inflation-adjusted, yields are nil or negative, meaning there is no opportunity cost for investors in non-income producing assets like gold and digital currencies. The stock of debt trading at a negative yield stands at $US17.7 trillion.
Bitcoin has also been helped by the slide in the value of the US dollar to a 2½-year low.
The prospect of yet more debt being deployed to prop up US growth in 2021 means more supply of dollars. This will keep the Fed buying bonds to repress yields as the US Treasury makes a greater call on lenders.
And around and around it goes.
Almost a decade on from the US having its credit rating downgraded from triple-A by Standard & Poor’s, holders of US dollars in the form of US Treasuries have watched successful administrations make a mockery of the debt ceiling.
The August 2010 downgrade came when US government debt was $US14.3 trillion – it’s now $US27 trillion. And let’s not get started with the $US100 trillion-plus of long term entitlements that still need to be paid and funded with yet more greenbacks.
While its easy to claim Bitcoin is being driven by speculators, its rise partly reflects concerns about the ongoing speculation by policymakers on the durability of debt-fuelled growth.
Central banks need only look in the mirror to understand Bitcoin’s success.