Bitcoin as a real asset
Bitcoin as a real asset
Welcome back. It is interesting how we talk about abstract terms without ever thinking about what they mean. We are constantly chatting about real assets. But what does one count? Suddenly I'm not sure. Email to me: robert.armstrong@ft.com
Is Bitcoin a real asset?
Several readers fell on me when I wrote this comparison of gold and Bitcoin a few days ago:
The gold price follows the VPI inflation, if at all, slowly and irregularly. Both rise over time, but the relationship is uneven. Gold is a real asset and there is a fixed amount of it, and people have liked it for thousands of years, and so it has held its value. . .
. . . Bitcoin is a real asset and there is a fixed amount of it, and people have liked it for a few years, and so it could keep its value after everything we know. However, there is no special reason to describe it as an inflation protection. If it correlates with anything, it is largely correlated with speculative appetite.
What about everything in the world did I mean to describe Bitcoin as a real asset? Most definitions of real assets are based on the distinction between inner or material value on the one hand and contractual or financial value on the other. Shares, bonds and currencies belong on the contractual/financial side. Oil, real estate, industrial metals and gold are located on the real/material/intrinsic side.
So if you think that Bitcoin is a currency - and it is called crypto currency directly on the can - then Bitcoin is not a real asset. But the name can be deceptive (I have already argued that Bitcoin is more of a share or a stock option than a currency).
One could argue that the jumping point of Bitcoin is that it is not contractual. In contrast to traditional currencies, she is not obliged to anyone. It is not a liability of a central bank. It is a counter in a digital capacity that does not belong to anyone; Part of a collectively regulated payment infrastructure.
The non-contractual character of Bitcoin is one of the reasons why many of his fans believe that it will have some of the decisive virtues of real assets, namely inflation protection and low correlation with financial systems. It is not only referred to as "digital gold" because both Bitcoin and gold have a limited offer, but because the value of both does not depend on the behavior of a financial institution, a government, a company or an individual. Bitcoin is not a contract, it is a tool. Yes, most real assets have been to touch. But why should that be your determining feature?
Edward Finley, financial professor at the University of Virginia, argued that the only defining feature of real assets was a high correlation with inflation. The opposite of "real" is not "financially" or "contractual", but "nominal".
The only things that have delivered this robust inflation correlation are real inputs for the productive economy (arable land, oil, mineral rights) or infrastructure systems that facilitate the productive economy (toll roads, pipelines, commercial properties). According to Finley's definition, even gold is not a real asset. Bitcoin, he emphasizes, is certainly not an economic input and cannot be seen as an infrastructure, "unless you buy the imagination that it will replace central bank currencies".
But maybe Bitcoin does not have to replace central bank currencies to become an economic infrastructure and thus a real asset?
Another reader, Dimitris Valatas from GreenMantle, represented an even harder line. He believes that the value of Bitcoin negatively correlates with inflation. He wrote that:
Bitcoin is a frontier asset and the preferred goal for excess liquidity during our current liquidity cycle. Inflation will cause the FED to increase, which will end the liquidity cycle and Bitcoin will do more damage than other assets. It is not only * no * inflation protection. It is hammered by excessive inflation. Crypto Bros miss this completely.
How good are the income so far?
According to the Factset, the profit growth in the third quarter of the S&P 500 companies on Friday is 33 percent compared to the same period last year. A little less than a quarter of the index had registered until the end of last week. That sounds like fast growth, and if it continues, the S&P 500 profit per share will be over $ 50.
Here is a diagram of the quarterly profits since 2008, with the current quarter estimate in green and the estimates for the next five quarters in chestnut brown:
Good diagram! As I often say: Buy US shares-your profits increase! But attentive readers will find that even if the profits reach $ 50 in this quarter, this is lower than in the first quarter. That 33 percent growth is somewhat deceptive compared to the previous year. We still make annual comparisons with the bad days of pandemic, which disguise the real current trend. Here, profit growth over the course of the year is shown over the course of the year (green) and in the quarterly comparison (blue). The current quarter is marked by the red line, so everything that follows is a consensus assessment:
The sequential profit growth has already returned to the low single -digit range, in which it usually hangs around. The annual growth will return to the usual high single -digit range in the next few quarters. Yes, energy and raw material companies are ready, but the profits in the (larger and more important) basic consumption goods and cyclical consumer goods sectors that have cut off so well during the pandemic slow down. This is a terribly simple point, but don't be fooled by the number of headlines. Overall, the income is pretty good, but not great.
also a point. Many companies exceed the profit estimates - and with a healthy gap - what is the form of good news on which Wall Street focuses. Take a look at this diagram of Ryan Grabinski from Strategas, which shows the proportion of companies that exceed the analysts:
Consider the up-and-the right trend over time. This seems unlikely that this is a diagram of companies that increase their profitability over time to the great surprise of the analysts. It seems much more likely to be a diagram in which analysts become more conservative in their forecasts for any reason. If this is correct, we should probably not be too happy that companies easily overcome a yardstick that is becoming increasingly lower over the years. Ignorate the noise around income strikes if you can. Only the Misses tell you anything at all.
a good reading
A fascinating observation of Ruchir Sharma in the FT: emerging countries that have set strong fiscal incentives during the pandemic have no or no obvious economic benefit.
The effect of stimuli. . . Could now be overwhelmed by factors that are unique for pandemic, including the global effects of huge incentives in the USA and other developed countries and the ongoing fight against the virus. . . In addition, too high expenses often go backwards.
These setbacks are shown in the form of inflation, a weakening currency, higher interest rates and high deficits in countries such as Hungary, Brazil and the Philippines: "Nations that spend in a hurry are often forced to reverse."
Source: Financial Times