On this episode of “Bitcoin Bottom Line,” host Steven McClurg is joined by Greg Foss and Josh Olszewics to discuss bonds. McClurg and Foss met while being coinvestors in the company that was responsible for bringing exchange-traded funds (ETFs) into Canada for the first time. Through a spot bitcoin ETF, the company gave regulators in Canada comfort that a bitcoin ETF could work without being manipulated.
INSTITUTIONAL ADOPTION THROUGH BITCOIN PRODUCTS
At the beginning of the episode, McClurg mentions that the last time he and Foss were together, they discussed gas flaring and how it could be used for mining bitcoin. Foss explains how he has seen this type of energy recapture progress in Canada. Although Canada does not have as much flare gas as the U.S., according to Foss, the company he is involved with has 400 megawatts of power that are former peaking plants, located along the TransCanada natural gas pipeline. This company plans to mine bitcoin at those plants, supporting the grid in the process by being paid when excess power is needed by consumers.
McClurg and Foss go on to discuss the two different potential audiences for bitcoin adoption: first, being an intermediary audience, which consists of financial advisors, and the second being institutions. Neither audience feels comfortable owning bitcoin directly. Miners and a bitcoin spot ETF seemed to be the two main ways to attract these audiences, though mining was too niche. McClurg and Foss found that companies wanted correlation to bitcoin, but not through mining and not by holding bitcoin themselves.
The speakers believe that the institutions will be entering the Bitcoin space soon enough. Foss shared that Fidelity, one of the largest asset managers in the world, thinks that, by 2026, bitcoin will be a significant asset class.
BONDS AREN’T ENOUGH TO SAVE PENSIONS
Foss is a big skeptic of bonds, “There are no returns left in bonds so everybody’s pension is relying almost entirely on equities as a performance generator. If pension funds go into the underfunded status, there are going to be a lot of upset pensioners and an upset president.” He goes through the math to prove why bonds won’t save pension funds and how holding bonds is a risky bet. Foss discusses bitcoin as a long volatility asset and the counterpart which is short credit, “When you have short credit, you have long volatility.” He continues that bitcoin is the best asymmetric return opportunity that he has seen in his 30 years of managing risk.
The trio closes the episode expecting an arms race with central banks rushing to purchase bitcoin. They hypothesize that the Federal Reserve may try to raise rates a few times starting in March 2022, but the markets won’t be able to handle more than two or three rate hikes. Ultimately, they think the Fed has its hands tied and may not be able to raise rates at all. Foss ends the episode by telling listeners, “Learn math, sell your bonds and buy bitcoin.”
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