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Smart Money is Slowly Funneling into Bitcoin

Updated: Jun 14, 2020

In the recent weeks, one of the most compelling and bullish-cases for bitcoin finally materialized and started to gain traction: the introduction of real smart money into bitcoin. Paul Tudor Jones, one of the world's most well respected and wealthy hedge-fund managers, disclosed that his fund, Tudor Investment Corporation, had recently initiated a position in bitcoin futures, with the position size being approximately 2% of his portfolio.

Now, for most "bitcoiners" and the general public, this was unmistakably big news. I mean, a Wall Street legend with over 40 years of investing prowess has entered bitcoin. This is in itself, a huge refreshing change of environment considering that many other notably Wall Street big guns, such as Warren Buffet, Jamie Dimon etc, have denounced the use cases of bitcoin and shrugged off its legitimacy as a global asset. FINALLY, we actually have another big name advocate of bitcoin! While Paul Tudor Jones is definitely not the first big money investor into bitcoin, he certainly is one of the highest profile investors to date.

This means many things for bitcoin, but most importantly - it has given a major boost to the narrative of bitcoin being an uncorrelated asset and as an inflation hedge against the dollar inflation.

Paul Tudor Jones has arguably entered bitcoin at one of the most critical and defining periods in bitcoin's short but tumultuous history. In the face of extreme liquidity reactions by the US Federal government in responding to the impacts of COVID-19, more than 6 trillion dollars has been created in the form of additional stimulus, basically out of thin air. Yes, central banks all over the world have the power to just magically create new money. (which makes me wonder - why have I even been paying my taxes all these years if they could just print more?). What they chose to do with that money is gut-wrenching story for another day, but let me just say that generations upon generations will be paying for this newly created debt, as we witness the dollar we have today, slowly depreciate and erode in value into nothingness.

Over the last decades, gold has now firmly been recognized as an separate and uncorrelated asset to fiat currency (our every day money). This is undisputed, as the very relationship between fiat currency and gold was severed in 1971, in an event known as the Nixon Shock, where it was decided then henceforth, the value of the dollar (paper money), would not longer be required to be backed in value by gold. This was the advent of fiat currency (the money we all know of today), and the resulting inflation, led to gold being recognized as an inflationary hedge.

Which brings us back to bitcoin. In his official disclosure, Paul Tudor Jones shared his reason for adding bitcoin into this Tudor Investment Corporation portfolio mainly, as an inflation hedge against central banks around the globe printing money, even describing bitcoin as being very similar to gold in the 1970s.

I cannot stress further how much of a momentous moment this is for bitcoin. Firstly, the negative effects of excessive money printing is surely known to all in Wall Street. Increased inflation has always been an inevitable outcome of quantitative easing. What has changed here, is that bitcoin has now been recognized in an official capacity by people, and now fund managers as an alternative inflationary hedge, complementary to gold. While the effects of inflation silently erodes away against the value of the dollar, more starkly, bitcoin's own strength against the dollar is becoming increasingly difficult for fund managers and smart money to ignore. More and more commonly. the narrative of "owning at least 1-2% of net asset value in bitcoin as a hedge against inflation" is being thrown around (a few that I wholeheartedly agree with.

If more and more Paul Tudor Jones' start acting on this narrative, it is obvious what even 1-2% of that smart money would do to the price and market capitalization of bitcoin. What effect this eventually has on bitcoin's price is anyone's guess, but my bet is always that bitcoin will continue to do what it has always been doing, outperforming any other asset class by a country mile.

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