GIS SR 2017 09 15 (1).pdf
GLOBAL INVESTMENT STRATEGY
Bitcoin’s Macro Impact
September 15, 2017
In this Issue:
Bitcoin and other virtual currencies have sold off sharply in recent days. However, as
the turn of the millennium dotcom boom and bust illustrates, wild swings in asset
prices can sometimes mask important structural changes that new technologies have
unleashed on the global economy.
If the proliferation of virtual currencies continues, it will have real macroeconomic
Globally, the volume of currency in circulation – the largest component of base money
– has grown by 5.5% year-over-year. However, the growth rate would be 7% if virtual
currencies were included in the tally.
The indirect increase in global liquidity coming from virtual currencies should provide a
modest boost to spending. This is somewhat bearish for bonds but bullish for equities.
The implications for gold and the dollar are mixed.
Governments derive significant “seigniorage revenue” from their ability to issue fiat
currency. This is likely to impede the widespread adoption of virtual currencies, ultimately capping their prices.
Their Cut............. 5
In Search Of
A Problem?......... 6
Bitcoin And Beyond
he price of bitcoin has been extremely volatile lately, falling by more than 10% last
week after the Chinese government announced a ban on so-called Initial Coin Offerings. The downdraft continued into this week, spurred on by JPMorgan CEO Jamie Dimon’s
description of bitcoin as a “fraud.”
Chief Global Strategist
The recent selloff followed a dizzying ascent which saw the price of the upstart currency
surpass $5000 earlier this month (Chart 1). Despite the pullback, one thousand dollars
of bitcoin purchased in July 2010 would still be worth $58 million today.
Such mind-boggling returns have caught the public’s attention. There were more Google
searches for “bitcoin” in August and September than for “Donald Trump” (Chart 2). Public appetite is so high that the Bitcoin Investment Trust, though officially an open-ended
vehicle, has traded as high as twice its net asset value in recent months.
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Daniel Cappuccitti FOSTER & ASSOCS FINANCIAL SVRS