Investment

The billionaires piling into bitcoin and why they think its “monetary electricity”

Norwegian shipping billionaire Kjell Inge Røkke is starting an enterprise to invest in bitcoin and develop cutting-edge partnerships and applications in the sector.

The move follows a 24% jump in the US money supply in a year and the Biden administration’s decision to inject $1.9 trillion of deficit funding into an economy where US household savings could add trillions more.

This purchasing power has increased fears of inflation and a large minority of family offices are taking the view that bitcoin is a non-dollar safe haven for their funds.

Bitcoin may still go to zero. But it can also become the core of a new monetary architecture

According to Røkke: “Like gold, bitcoin has the ability to protect us against politicians who have the power to destroy our monetary base.”

Family Capital noted family offices were crossing the Rubicon last November. This contributed to a subsequent rise in the bitcoin price from $15,750 to a peak of $61,000 before profit-taking took it to $55,000.

Bitcoin evangelist Michael Saylor believes bitcoin is safer than gold which he views as an antiquated store of value. 

His advisory firm MicroStrategy has bought $5 billion of bitcoin, with the help of debt. Elon Musk’s Tesla has bought $1.5 billion. Square, run by Twitter founder Jack Dorsey, has bought $220 million. Hong Kong beauty app firm Meitu, run by Cai Wensheng, has acquired $40 million.  

It is no coincidence that each company is run by a strong-minded individual ready to defy consensus. More devolved companies and family offices tend to opt for the status quo.

Røkke bought his first trawler in the USin 1982 and went on to develop a global fisheries business.  In 1998 he bought control of industrial holding company Aker ASA.

Røkke’s new bitcoin business, Seetee, is an Aker offshoot that is starting with a modest capitalisation of $60 million.  It will develop new applications in blockchain and bitcoin technology through partnerships with third parties. It will be chaired by Ola Snøve, Røkke’s long-standing associate and Trygg Pharma CEO.

Seetee has forged an association with Blockstream, co-founded by UK-born Adam Back, whose technology was a precursor to the creation of bitcoin by Satoshi Nakamoto.  

The association has led to discussions relating to cash transmission and ways to make energy use in bitcoin transactions more efficient. The bitcoin sector’s high consumption of electricity has been criticised by Bill Gates although Røkke points out gold miners waste far more.

He said he recently met Strike’s tech guru Jack Mallers, and came away impressed. The Lightning Network developed by Mallers can achieve currency transactions in milliseconds built on access to the bitcoin chain. 

Aker invests in a foreign exchange liquidity provider called Abelee. Røkke believes bitcoin architecture could offer an instant forex service at nearly no cost. Further services could be layered on top of bitcoin to create a new financial system.

Røkke is less impressed with the way economies are being managed at present. In a letter to shareholders, he said: “Central bankers have magically agreed that they should target two per cent inflation, which implies that one-third of your money’s worth is taxed away every twenty years. If it was three per cent almost half of it would be gone.” 

This kind of stress benefits debtors while bonds and equities risk losing their value as stores of wealth.  “What happens to the monetary system if people start questioning the stability of the reserve currency?” 

Røkke adds: “Bitcoin may still go to zero. But it can also become the core of a new monetary architecture.”

Røkke is more patient with gold than Michael Saylor who recently told the Family Office Association: “Gold is breaking down, and being destroyed because it’s an antiquated elitist store of value. It’s a disaster. 

“Bitcoin is strong money on a crypto network, and there’s no reason it can’t flip gold and increase its value from $1 to $10 trillion and then replace most debt as a store of value and go to $100 trillion.  And if it does, it’s going up by a factor of a hundred. And if you miss it it will be the greatest opportunity of your lifetime and you will have missed it because you are too lazy to do the work.”

MicroStrategy, a listed advisory business run by Saylor, has acquired bitcoin worth $5 billion to achieve ultra-safe haven status. Its shares have tracked bitcoin’s gains to rise 600% in a year and attracted Morgan Stanley as a 10% investor. 

Like Røkke, Saylor sees a big future for new bitcoin applications: “It’s gold in cyberspace. You can move it at the speed of light, you can programme it with a million transactions a second. You can use it as the base for the 21stCentury economy.  And the quantity of bitcoin is capped at 21 million.” 

“The digital monetary network is going to be bigger than the internet and 99% of the world doesn’t get it. They think it’s a tulip bubble, but it’s not. It’s monetary electricity.”  

He says the Federal Reserve increased the US money supply of dollars by 24% last year, or 11% annualised over ten, to support the economy.  This has increased the cost of capital, and inflated the value of asset classes to a point where their income cannot cover the future cost of living.

In contrast, bitcoin, up 960% in the last twelve months, is a unique example of an asset class providing investors with exposure to a safe haven and cyberscience. Taken with momentum investing, and a fear of losing out, bitcoin’s performance has become turbo-charged.

Institutions and asset managers have started investing in bitcoin in recent months, seeing it as a future profit stream. However, there are still many sceptics out there. 

Former hedge fund manager Whitney Tilson says in a recent blog: “I have no regrets about ‘missing’ bitcoin. I’m not interested in investing in any cryptocurrency for the same reason I’m not interested in buying a Rembrandt: because I can’t value it. But I would never short anything in the cryptocurrency or art markets, either, because it’s impossible to predict human emotions.” 

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