Bank Of America Calls Bitcoin ‘Impractical,’ And Crypto Community Has A Lot To Say About That
Bank of America Corp (NYSE: BAC) faced some backlash from the crypto community earlier today, after its criticism of Bitcoin from its latest research note made headlines.
What Happened: The bank’s research note titled “Bitcoin’s Dirty Little Secrets” stated that there is “no good reason to own Bitcoin unless you see prices going up”. According to the bank, Bitcoin’s volatility makes it impractical as a store of value or a payments mechanism.
Why It Matters: The research note was not well received by the crypto community who took to Twitter to share their thoughts about it.
Samson Mow, CSO of blockchain technology company Blockstream, shared a graph of Bank of America’s stock price over the years and said, “If your stonk chart looks like this, you don’t get to call Bitcoin volatile.”
If your stonk chart looks like this, you don’t get to call #Bitcoin volatile. @BankofAmerica pic.twitter.com/nVpqlFhejY — Samson Mow (@Excellion) March 19, 2021
The research note also claimed that central bank digital currencies (CBDCs) would be “kryptonite for cryptocurrency”, which most users described as the “worst take” on cryptocurrency they have heard.
Popular Bitcoin proponent Anthony Pompliano stated on Twitter that the Bank of America has a higher chance of failing than Bitcoin, and was quickly backed by most of his 650k followers on the platform. CZ, CEO of the largest cryptocurrency exchange by volume Binance, suggested that it wouldn’t be just Bank of America, but rather, all banks that would fail before Bitcoin did.
Bank of America has a higher chance of failing than Bitcoin. — Pomp (@APompliano) March 17, 2021
The bank’s criticism, however, was appreciated by known Bitcoin critic Peter Schiff – According to him, the research report “concluded the obvious” and he went on to reiterate his belief that Bitcoin is the ultimate bubble.
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Bank of America’s stance on Bitcoin comes at a time where large institutions and public companies are buying and holding the digital asset on their balance sheets. Earlier this week, Morgan Stanley (NYSE: MS) said it would offer Bitcoin to its wealthy clients.
At the time of writing, Bitcoin was trading at $58,500, up 5% in the past 24-hours. With over $1 trillion in market cap, Bitcoin is larger than JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc (NYSE: C) ,and Bank of America combined.
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The CIO of a crypto hedge fund breaks down why bitcoin could rally as high as $400,000 in 2 years — and explains why he’s also bullish on DeFi and NFTs
Ari Paul is the co-founder and chief investment officer of crypto hedge fund BlockTower Capital.
Paul breaks down why he thinks bitcoin could rise to $100k-$400k over the next nine to 24 months.
He also shares the prospects and investment merits of decentralized finance and non-fungible tokens.
See more stories on Insider’s business page.
Like many investors in the traditional finance world, Ari Paul was dismissive when a smart friend emailed him in 2011 saying “bitcoin is interesting, take a look.”
“I responded definitively, bitcoin will never have value because value comes from either long-term historical appreciation of value like gold or fiat backed by guns,” Paul said in an interview.
That e-mail now serves as a humbling memory for Paul, who is the co-founder and chief investment officer of crypto and blockchain hedge fund BlockTower Capital.
Back then, as a derivatives trader at Susquehanna International and later a risk manager and portfolio manager for the University of Chicago’s then $7 billion endowment, Paul was skeptical of bitcoin.
Over time, as he began to learn more about bitcoin, blockchain, and the crypto space, he fell into the proverbial rabbit hole, but it was the resilience of the digital asset that finally turned him around.
After witnessing the shutdown of the black market Silk Road and the hacker-inflicted demise of the Tokyo-based crypto exchange Mt. Gox in 2013 and 2014, Paul bought his first bitcoin in mid-2014 for about $400 to $500 apiece.
“Bitcoin clearly was surviving and thriving in spite of that,” Paul said. “Even though the price was correcting, I thought maybe this is a good entry price. At least I’m not buying the top, I’m buying a 70% discount from the top.”
Bitcoin could rise to between $100,000 to $400,000
Paul’s experiences working as a trader and asset allocator explain why he was drawn to the world of cryptocurrency.
He said in traditional finance, trading has become extremely competitive where traders are constantly fighting over milliseconds of latency or the second decimal point of models.
However, crypto trading is still “very blue-ocean” and wildly inefficient.
“It’s a very level playing field where you are not competing against incumbents like a Citadel or Renaissance Technologies with many years and many billions of dollars of sunk cost into their hardware, infrastructure, and their expert networks,” he said.
From an investment allocation perspective, Paul was excited by the “100x” potential of the nascent asset class versus the traditional buy-and-hold investing approach used by university endowments, for example.
Aside from its investment merits, he is also attracted to the decentralized and defensive nature of bitcoin in that it could help individuals hide their wealth from the reaches of totalitarian regimes.
“This is a technology that empowers the individual against an army or a state or a mob,” he said. “Someone with a desktop computer or an iPhone can encrypt communications in a way that the state government can’t read. Bitcoin is the money version of that and it empowers people living under a totalitarian state to flee that country with their wealth.”
The appealing attributes of bitcoin have sent the digital currency to as high as $61,000 a week ago from $20,000 last December, but they have also contributed to its notorious volatility. Bitcoin is hovering around $58,500 in Friday afternoon trading.
Paul believes that the volatility is a natural byproduct of bitcoin’s growth phase.
Specifically, as more institutional investors such as Morgan Stanley and BNY Mellon come to embrace bitcoin, the bitcoin bulls would bet on the price of the digital asset and sometimes in a levered way, leading the price to appreciate dramatically.
The flip side of that is once the price goes down a little bit, investors would rush to liquidate, causing a fast and sharp correction in price.
“As long as bitcoin is still in this growth phase and until it reaches maturity where basically the entire world is choosing actively to be long it or not,” he said, “it’s probably going to keep following this curve of extreme volatility as it goes higher.”
Because of bitcoin’s wild fluctuation, instead of setting a specific price target for bitcoin, Paul is estimating that the digital token will rise to between $100,000 to $400,000 in the current crypto bull market that is likely to last another nine to 24 months.
Bullish on DeFi and NFTs
BlockTower Capital applies almost every traditional hedge fund strategy to the world of crypto, which means betting on catalysts, making event-driven trades, or betting on which protocols and projects could accrue usage and value over time, according to Paul.
As a result, he is also bullish on two of the hottest trends in the crypto space right now — decentralized finance and non-fungible tokens.
At the most basic level, DeFi is comprised of decentralized exchanges and decentralized lending, which together have locked in billions of dollars of value.
On the exchange side, the bull case has become extremely compelling since Robinhood and other brokerages decided to restrict retail investors from buying GameStop shares after its short squeeze-fueled run-up, Paul said.
Even before that, the laborious process of transferring assets among different exchanges, whose closure during the weekends adds to the inefficiency, has made the modern exchange infrastructure feel “very outdated.”
“What email was to communication — instant, free, global, 24/7 — bitcoin is that for money; you could transfer it anywhere in the world 24/7,” he said. “And DeFi is email for exchanges, for lending, and for banking.”
As for NFTs, despite the skyrocketing interest in digital art and sports collectibles, Paul thinks that the broad concept of NFTs can be applied to everything from real estate ownership to equity and debt ownership.
But the NFT frenzy among internet-native millennials and Gen-Z is worth noting. In a world where fake goods and fabricated items can look as good as the authentic ones, a cryptographic signature that proves the authenticity and exclusivity of something is “incredibly important,” Paul said.
“It’s really tough to be comfortable buying a $40,000 watch when I know that I can’t tell the difference between that watch and a $2,000 knock-off even on close inspection,” he said. “If I can’t tell the difference, how do I justify paying the extra $30,000? So I think cryptographic authenticity and provenance are also meaningful improvements.”
We talked to crypto-art investors to figure out what’s driving people to spend millions on NFTs, despite no guarantee their value will increase
NFTs have generated billions of dollars and one NFT sold for nearly $70 million.
Many people question whether the digital assets will maintain their value over time.
Some investors compare the NFT boom to the dawn of the internet.
See more stories on Insider’s business page.
In the past month, people have spent over $1 billion on digital assets, according to data from CryptoSlam.
Crypto art has been around for over half a decade, but for many people outside of the crypto world, these digital assets, known as non-fungible tokens or NFTs, have seemingly come out of nowhere.
So, what’s driving people to get in on the NFT mania, investing anywhere from hundreds of dollars, to in some cases, millions? Crypto art investors say it’s a combination of several factors, including the pandemic, as well as the rise in bitcoin prices.
In the past few months crypto artists have been drawing more attention than ever before to NFT marketplaces with flashy sales.
Last week, digital artist Mike Winkelmann — more commonly known as Beeple — made history when he sold a crypto art piece for nearly $70 million. Other artists like Grimes and 3LAU have also made millions in a matter of hours dropping crypto-art collections.
On Monday, at the mere suggestion of Tesla CEO Elon Musk selling his own digital asset, bids for the piece topped $1 million, before Musk turned down the offer.
Creators and buyers alike have seen significant profit from crypto art. In February, Miami-based art collector Pablo Rodriguez-Fraile first showed just how lucrative the market can be when he resold a piece by Beeple for a nearly 1,000% increase over its original price.
Why are people buying NFTs now?
Rodriguez-Fraile told Insider the surging price of Bitcoin, impact of the pandemic, and distrust in the US dollar created a perfect storm.
Last week, Bitcoin hit a record high, topping $60,000. Since the pandemic started more people have been saving money. 59% of people with an income over $100,000 significantly boosted their savings in 2020. As faith in the US dollar seems to be at an all-time low, NFTs could be another way for people to invest.
“People have long used art to store value,” Rodriguez-Fraile told Insider. “Crypto extends easily into digital art. This is just a more modern approach to investing in art and using it like someone would use gold or bitcoin.”
He thinks the NFT boom was accelerated by the pandemic, but ultimately inevitable — a product of the tech boom that younger generations would have eventually driven anyway.
For many artists, especially in the music industry, multi-million dollar sales by 3LAU and Grimes have captured the spotlight and created a sort of gold rush, but for buyers the reasoning is less clear.
Will NFTs maintain their value?
Investor Gary Vaynerchuk, the CEO of VaynerMedia, told CoinDesk he believes NFTs are operating under a bubble, but it doesn’t mean they won’t have staying power.
“A lot of people talked about the internet being a fad,” Vaynerchuk said. “In reality, the internet was this game-changing revolution of technology, but a lot of the early projects were just overpriced on the excitement.”
Even Winkelmann admits NFTs are likely overinflated.
“If it’s not a bubble now, I do believe it probably will be a bubble at some point because there’s just so many people rushing into this space,” Winkelmann told CoinDesk.
What do you get when you buy an NFT?
When someone buys an NFT they gain the rights to the unique token, but only on the blockchain. If someone buys a image or meme, they can own it on the blockchain, but they have no control over rights to its distribution.
When you buy an NFT in most cases you’re not buying content, but rather a token that connects your name with the creator’s art on the blockchain.
However, the digital tokens operate on the same deflationary principles as bitcoin. NFTs cannot be duplicated, can be easily authenticated, and are immutable, but there’s no surefire way to know whether they will maintain their value over time.
Billionaire Mark Cuban told Insider buying NFTs is about scarcity.
“The buyer knows how many will be made and has blockchain proof of ownership,” Cuban told Insider.
Cuban has been a proponent of NFT investing, from buying NBA Top Shot clips to investing in Mintable, a community-controlled digital-asset marketplace.
The CEO of SuperRare, another NFT site, told Insider people are motivated to buy NFTs because it provides a unique connection to the creator that does not exist with any other art form.
Crypto art has also spawned entire communities online. Robert Martin, a senior content strategist at Kapwing, told Insider there’s a lot of pressure right now to buy and even create your own NFTs within the crypto community.
NFT buyers are not necessarily fans
Music Industry expert Cherie Hu told Insider an artist’s fan base does not dictate their NFT sales. How could it? How many fans would be able to drop thousands if not millions of dollars on a single digital token?
Musician Justin Blau, known by his stage name 3LAU, and André Allen Anjos, known as RAC, have been members of the crypto community for over half a decade. They told Insider a lot of their buyers are already investors in the crypto world. As artists they make a point of buying other creators' NFTs as well.
“The crypto community creates and sells these artworks for each other,” Hu told Insider.
While NFT investors hardly account for a large portion of a creator’s fanbase, involvement from outside the crypto community is on the rise.
Platforms like NBA Top Shot are spreading awareness and present broader audience appeal. Hu told Insider that she believes the NFT space will continue to grow, but will need to become more accessible in order to generate mainstream appeal.
Read more: Here are 4 NFT startups transforming the way we buy art and sports memorabilia
NFTs still face several barriers to mass adoption. Most NFT marketplaces require buyers to use a crypto wallet. Only about $70 million people — less than 1% of the world’s population — have a crypto wallet, according to Blockchain.com.
Creators and buyer also have to deal with gas fees associated with minting and buying a product off the blockchain. These hidden fees can cost hundreds of dollars.
Co-founders of NFT platform Nifty Gateway, Duncan and Griffin Cock Foster have been working to make digital assets more attainable for the general public. They are one of few platforms that allow users to buy NFTs off the site using their credit card.
“We’re trying to make a space where anyone can be an art collector,” Griffin Cock Foster told Insider.
Rodriguez-Fraile said NFTs represent the future of the art world.
“A few years from now this could just be how people own art,” he told Insider.