Why Bitcoin’s Investment Case Is The ‘Most Challenged’ In Years: Crypto CIO


Travis Kling is the chief investment officer at crypto asset management company Ikigai.

Travis Kling is the chief investment officer at crypto asset management company Ikigai.

Averi Gerberding

  • Travis Kling is the chief investment officer at crypto asset management company Ikigai.
  • Traditional stocks and cryptocurrencies are too coupled for Bitcoin to be a hedge against inflation, says Kling.
  • Former Point72 portfolio manager discusses ethereum’s bull case.

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

The cryptocurrency, which was trading at $19,856, had not achieved that small market share since March 2018. Bitcoin accounted for 39.06% of the market with a capitalization of $387.85 billion, according to CoinMarketCap.

However, all major cryptocurrencies have crashed, with the value of the industry down by around two-thirds from its peak. Both ethereum and bitcoin are more than 70% down from their all-time highs, respectively.

Travis Kling, the CIO of crypto appraisal management firm Ikigai, says the investment case for bitcoin, however, is the weakest in years.

“Bitcoin’s investment case is the most challenging 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 of CPI inflation.”

Maximalists have touted bitcoin as a hedge against inflation due to its 21 million fixed supply and store of value, comparable to alternative investments like gold or fine art.

In bitcoin’s 13-year history, interest rates have been low, which may not have put this narrative to the test until recently. And as economic factors roil the markets, cryptocurrencies’ high correlation with traditional stocks has proven otherwise.

“I didn’t expect it to be uncorrelated, but I also didn’t expect the correlation to be this close for so long,” Kling said.

However, as the Federal Reserve continues to raise interest rates, investors seem risk-averse across the board. The S&P is on track to post three straight quarters of losses, which hasn’t happened since the 2008 financial crisis. Policymakers expect the gains to continue into next year, according to the Fed’s latest outlook, with rates about 1.5 percentage points from its current level.

“It’s all a trade,” he said. “This is Jay’s world right now and cryptocurrencies are going to live and die by him, along with every other asset on planet Earth,” she added, referring to Fed Chairman Jerome Powell.

There is a “multifaceted macro risk” that has also hemorrhaged into crypto markets, Kling told Insider, citing harsh macro conditions such as an uncertain geopolitical climate, a looming energy crisis in the EU, and aggressive monetary policies.

If not bitcoin, then what?

Kling says that bitcoin “vastly underperformed” in the last market cycle and when the Fed enters a “easing cycle”, its dominance over the market could continue to decline.

“When all this space blows up again,” says Kling, “it would be my base case that bitcoin will underperform and that in that situation it will hit new lows in market dominance.”

Ren Yu Kong, DeFi portfolio manager at crypto hedge fund BKCoin Capital, predicts that ethereum could trade bitcoin for market cap within the next five years.

“Earlier this year, if you asked any investment professional, the de facto answer was definitely dollar cost averaging in BTC,” the 25-year-old previously told Insider. “If you really wanted to take a little more risk, you could allocate a little bit to ETH. I think that has definitely changed now.”

However, the market capitalization of Ethereum is currently half that of Bitcoin. Bitcoin’s market capitalization is notched at $372 billion, while Ethereum’s is at $162 billion.

Some executives are even more bullish on ethereum and believe it could overtake bitcoin in market capitalization within the next year.

In an August note to clients, Sean Farrell, Fundstrat’s vice president of digital assets, said the firm was on alert 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 in market cap over the next 12 months,” Farrell said.

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