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Bill Gross says bitcoin might lead to an alternative to the current financial system

Bill Gross recently shared his thoughts about bitcoin and blockchain. As Portfolio Manager of the Janus Global Unconstrained Bond strategy, Gross is responsible for US$1.54 billion in assets.

Bill Gross recently shared his thoughts about bitcoin and blockchain. As Portfolio Manager of the Janus Global Unconstrained Bond strategy, Gross is responsible for US$1.54 billion in assets.

Gross has had a long and successful career in financial markets. He co-founded Pacific Investment Management (PIMCO) in 1971 and went on to run what would become the world’s largest bond fund, PIMCO’s Total Return Fund, which had US$270 billion in assets. He left the position to join Janus in September 2014.

The finance titan has received numerous achievement awards such as Morningstar Fixed Income Manager of the Decade for 2000-2009 and Fixed-Income Manager of the Year for 1998, 2000 and 2007. He was also the first portfolio manager inducted into the Fixed Income Analysts Society’s Hall of Fame. Institutional Investor magazine awarded him the Money Management Lifetime Achievement Award in 2011. In addition, he authored two popular books on investing.

Bill Gross“Central bankers have fostered a casino like atmosphere where savers/investors are presented with a Hobson’s Choice, or perhaps a more damaging Sophie’s Choice of participating (or not) in markets previously beyond prior imagination. Investors/savers are now scrappin’ like mongrel dogs for tidbits of return at the zero bound. This cannot end well.”
— – Bill Gross, Janus Portfolio Manager

In his Monthly Investment Outlook published on Tuesday, Gross states, “Our financial markets have become a Vegas/Macau/Monte Carlo casino.” While central banks keep printing money to reflate global economies, low yields erode and destroy historical business models that foster savings and investment, and ultimately economic growth.

“The continuation of current monetary policies will lead to capital destruction as opposed to capital creation,” Gross explained. While Banks, insurance companies, and pension funds have been negatively affected, Gross told Bloomberg that mom and pop on mainstreet will ultimately turn to alternative investments, “When they get to the point where they take the money out of the bank and put it in the mattress.”

The Portfolio Manager isn’t buying bitcoin for the Janus fund. “I know not much about bitcoin and I know not much about blockchain technology,” he told bloomberg. “I’m just speaking to potential solutions that might eventually lead to an alternative, with stability, compared to the current system we have now. It’s probably years ahead, but we should look ahead, as opposed to look behind.”

While bitcoin has been notoriously volatile in the past, the digital currency has become more stable over time. Needham & Company released a report in September stating that it’s volatility has declined significantly in recent years.

bitcoin volaility oct 2016

Founded in 1985, Needham & Company is a subsidiary of the Needham Group and a leading investment banking and asset management firm. The firm has so far acted as lead or co-manager in over 785 public offerings, including 278 IPOs. It has also been an agent on more than 115 private placement and completed over 385 mergers and acquisitions. The firm’s transactions total over $200 billion.

Needham analyst Spencer Bogart found that currently, bitcoin’s daily volatility is similar to the high end of small-cap stocks. “Given the large opportunity ahead and the overall nascence of Bitcoin itself, the similar levels of volatility between Bitcoin and small-cap stocks are not altogether surprising,” states the analyst. He added that bitcoin’s recent volatility has fallen below that of some of the most popular internet IPOs.

Bogart expects a continued increase in bitcoin liquidity and a decrease in volatility. Once the volatility falls within a range tolerable to more investors there will be a corresponding increase in interest among institutional investors, he wrote, adding that Bitcoin’s low correlation to major asset classes is one of the most appealing aspects of Bitcoin for institutional investors, Bogart stated.

Bogart raised his bitcoin price projection from his earlier forecast of $655 in March to $848. While recognizing bitcoin as a highly speculative investment he’s encouraged by Bitcoin’s rapid progress, “and the major room that we see for growth.” In addition, bitcoin adoption has grown faster than he forecasted in March.

“Contrary to popular narrative, we see Bitcoin’s fundamentals trending very favorably,” the analyst said. “We find the outlook very encouraging, and we believe the short- to intermediate-term horizon is among the most exciting Bitcoin has seen.”

needham and co logo“As Bitcoin adoption, trading, and liquidity has grown over time, volatility has steadily declined. In particular, the annualized volatility of Bitcoin’s daily returns has nearly halved from mid-2014 to mid-2016, and daily price volatility is now similar to the volatility of oil.”
— – Spencer Bogart, Needham & Company Analyst

A June report by Ark Invest and Coinbase came to a similar conclusion. “While bitcoin still experiences large price swings, the magnitude of those swings has diminished resulting in decreased volatility,” the report reads. Authors Chris Burniske and Adam White illustrated that bitcoin’s daily volatility at the start of May was about a third that of five years ago and 24% less than at the start of May 2015.

Burniske and White explored its correlation to other major asset classes such as equities, bonds, real estate, gold, oil, and emerging market currencies. “Bitcoin is the only asset that maintains consistently low correlations with every other asset,” states the report. “Remarkably, the maximum correlation, positive or negative, that bitcoin exhibited with each of the other assets is the minimum correlation that any of the other paired assets displayed with each other.”

In an August interview with CNBC, the CEO of Vanda Securities, Jason Ambrose, offered his insight into bitcoin for institutional investors. Vanda Securities is an independent research house that provides tactical macroeconomic and investment strategy analysis to institutional investors and hedge fund managers. Ambrose said he would personally trade bitcoin. His institutional clients, on the other hand, haven’t shown any interest. However, he added interest, “Will come.”


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