The Breakdown - By the Numbers: More Bitcoin Bulls Than Ever Before

Episode Date: November 1, 2020

On this week’s Long Reads Sunday, NLW diverts from our normal opinion and long-form essay to pursue Grayscale’s recent investor reports. In its survey of investors, Grayscale found more interest in bitcoin investing than ever before, with a significant amount of the growth in interest being driven by economic and monetary policy following the coronavirus pandemic. scribd.com/document/481729535/Grayscale-2020-Bitcoin-Investor-Study   

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by CoinDes. What's going on, guys? It is Sunday, November 1st, and that means it's time for Longreed Sunday. As you'll have heard from yesterday's show, I think that the, big theme, or at least one of the big themes from last week, was some serious bullishness for Bitcoin. And so today, I'm keeping with that theme and I'm going to do something a little bit different. Instead of the normal sort of op-ed that I read, I'm going to read Gray Scales' 2020 Bitcoin

investor study. This is a look that they've done for the last two years around where Bitcoin fits in the investor mindset, and it's pretty good. Now, one note, obviously, I won't be able to read all of the different charts in this 13-page PDF, so I recommend you go check out the link in the show notes. This is the second consecutive year that Grayscale, the world's largest digital currency asset manager, surveyed investors to explore changing attitudes and perspectives around Bitcoin. Since its inception more than a decade ago, Bitcoin has become a popular topic for discussion for investors, advisors, financial institutions, service providers, regulators, and policy makers. As more stakeholders come to the table on this nascent asset, they have brought a variety of

perspectives and research that, collectively, has helped the world better understand how digital currencies fit within the existing global financial system. Though it's clear, the world is still in the early days of integrating Bitcoin into our everyday lives. This year has been unlike any other in recent history. The COVID-19 pandemic and subsequent economic recession have forced individuals, small businesses, corporations, and governments to make radical changes in a short period of time. fostering opportunities for innovation on the one hand, yet causing economic distress and displacement on the other. This period of rapid change has forced investors to respond in kind, and new trends have developed that will only be understood years down the line. With that in mind, it's not entirely

surprising that our survey revealed a significant increase in interest in safe haven assets compared to 2019's results. This year's survey saw the continuation of some trends from last year, while other findings stood out for being significantly different and sometimes unexpected, given the market environment. No matter what side of the Bitcoin you may be on, it's critical to understand how today's investors view Bitcoin, the trends driving its growing popularity, the opportunities it presents, and the challenges it still faces as the leader of the financial industry's newest asset class. Survey highlights.

Interest is on the rise. More than half of U.S. investors are interested in investing in Bitcoin. In 2020, more than half, 55% of survey respondents expressed interest in Bitcoin investment products. This marks a significant increase from the 36% of investors who said they were interested in 2019. Most Bitcoin investors made allocations in the last 12 months. Among those who reported investing in Bitcoin, 83% have made investments within the last year, indicating that digital currencies are an increasingly attractive component of modern investment portfolios. The global pandemic was a key dream.

driver of Bitcoin investments in 2020. 38% of Bitcoin investors had invested within the last four months, and nearly two-thirds of those reported that the ramifications of COVID-19 were a factor in their decision to do so. Bitcoin is moving towards mainstream acceptance. While initially thought of as a niche asset class that appealed to a narrow pool of investors, digital currencies are gaining momentum as a mainstream investment opportunity. Based on this year's survey, the market of potential Bitcoin investors is 32 million strong, compared to 21 million investors just one year ago. This year, 62% of investors reported that they

are familiar with Bitcoin compared to 53% in 2019. In addition, nearly half of those surveyed predicted that digital currencies will be regarded as mainstream by the end of the current decade. The demographics of Bitcoin-interested investors are not substantially different from investors overall, except that investors interested in Bitcoin skew slightly younger with an average age of 42 compared to an average age of 49 for investors who said they were not interested in Bitcoin. Otherwise, Bitcoin-interested investors look remarkably similar to the average U.S. investor in most other ways. 2020's Bitcoin Investor Profile

While the number of investors expressing interest in and familiarity with Bitcoin increased substantially between 2019 and 2020, the common characteristic of investors interested in Bitcoin remained consistent. An investor who would consider Bitcoin investments is more likely to be male, younger, and employed than investors who are not interested. Investors interested in Bitcoin are also more likely to be actively seeking new investment opportunities, describe their risk tolerance as aggressive, hold investment accounts with multiple firms, and avidly consume financial news. The more formal education an investor has, the more likely they are to invest in Bitcoin. Twenty-nine percent of all

investors with graduate degrees had invested compared to 22 percent of undergraduate degree holders, and only 17 percent who did not have college degrees. Among the 23 percent of investors who had already invested in Bitcoin, about twice as many were male as female as female. However, 47% of all female investors surveyed said they would consider a Bitcoin investment product, up slightly from 43% in 2019, and 66% of women interested in Bitcoin would be more open to investing if they could see evidence of a strong performance track record. The cohort with the greatest proportion of Bitcoin investors was between the ages of 25 and 34, illustrating interest in the asset from an age group that has yet to enter their prime earning years. Motivating factors

for Bitcoin investments. The factors that drove interest in Bitcoin last year resonated even more with investors in 2020. In 2019, 59% of survey respondents indicated that the ability to start with a small amount and increase their investment over time would be a motivating factor when considering Bitcoin investment products. In 2020, that number increased to 65%. This is an important consideration for those just starting out, as it is easy to buy tiny fractions of Bitcoin, unlike stocks or bonds, which require brokerage platforms to provide special services enabling fractional purchasing. The perception of Bitcoin as an asset offering a large growth opportunity continues to be an important driver of interest. In 2019, 51% of investors

characterize potential growth as a motivating factor. One year later, 59% of investors are motivated by the prospect of growth, a number that increases to 79% among those investors who are already interested in Bitcoin. Investors appear to be increasing their propensity for Bitcoin investment products, something that can perhaps be attributed to growing awareness and education around the topic. In 2019, 69% of Bitcoin-interested investors said a strong performance track record would highly impact their interest in Bitcoin. In 2020, this figure dropped to 58%. However, the demand for more education on Bitcoin remains high. 58% said they would be more comfortable investing if they had more education about Bitcoin. With more than half of US investors interested in Bitcoin,

this dynamic creates an opportunity for financial advisors and other professionals to educate themselves about the asset class to cater to this growing cohort of investors. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com.

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paid out daily on your crypto and fiat. Your passive income made simple. Get started at nexo.io. The impact of COVID-19 on Bitcoin investment decisions. The ongoing global COVID-19 pandemic has rocked countries, industries, and businesses around the world, and the investment community is no exception. Roughly two-thirds of survey respondents who had invested in Bitcoin within the previous four months, comprising 38% of all Bitcoin investors, reported that COVID-19 had impacted their decision to invest in the digital currency. In August 2020, JPMorgan analysts found that some retail investors, particularly younger

investors, had deployed excess liquidity to Bitcoin in response to the pandemic. When asked whether the pandemic made Bitcoin investment products more or less appealing to them, three times as many investors indicated that COVID-19 had increased Bitcoin's appeal as those reporting that the pandemic had diminished their interest in it. Bitcoin appears to share some attributes with safe haven investments. Bitcoin's scarcity, verifiable nature, lack of correlation to global, global markets, and the fact that it isn't controlled by government organizations or attributes that made Bitcoin similar to traditional safe haven investments. A significantly higher percentage of survey respondents who expressed interest in Bitcoin said they would definitely or probably

pursue safe haven investments during times of market volatility or an economic downturn, 82%. Compared to investors who are not interested in Bitcoin, 38%. Respondents who were interested in Bitcoin were also more likely than other investors to consider Bitcoin a safe haven investment. 38% to 4%. Interestingly, the single largest age group of people who saw Bitcoin as a safe haven were between the ages of 35 and 44. This group of investors has already navigated three recessions and has seen traditional defensive instruments, such as real estate, defensive stocks, and bonds lose their appeal as hedges against market downturns. With faith in traditional safe havens being tested, investors are actively seeking suitable alternatives. Financial Advisors and the Bitcoin

opportunity. The guidance of a trusted financial advisor typically carries substantial weight with clients, and this proves to be true with Bitcoin. 31% of all survey respondents and 40% of investors who are already considering Bitcoin said that they would be more likely to invest in Bitcoin if it were recommended to them by a financial advisor. For financial advisors, the opportunity to cater to these investors is closer than they may think. Given that nearly half of survey respondents who said they would consider Bitcoin investment products reported working with a financial advisor, 47%? These professionals have a significant opportunity to help interested clients incorporate Bitcoin investment products into their portfolios. Among those who are already interested in Bitcoin,

75% said they would be motivated to consider investing if their financial advisor were able to provide them directly with an investment option, as did more than half 55% of overall investors. Advisors who take the time to educate themselves about digital currencies gain the opportunity to engage with the younger demographic of investors seeking information and guidance. guidance around Bitcoin. Expertise in this area can help advisors establish relationships with clients who are early in their careers and still have yet to realize their full earning potential. Considering that a strong track record is a primary motivating factor for considering Bitcoin investment products, financial advisors may find the following chart compelling and useful

in discussing Bitcoin with their clients. As Bitcoin gains momentum, some headwinds persist. Despite many indicators that investors are increasingly interested in Bitcoin, the digital currency asset class still faces some challenges. In particular, certain demographic groups consistently express a lack of interest in Bitcoin investment products. Only 40% of investors in the 55-64 age group, the oldest cohort surveyed, were familiar with Bitcoin, the lowest number within any age group. Furthermore, only 30% of those aged 55 to 64 said they would consider a Bitcoin investment product. Common concerns among survey respondents who were not interested in Bitcoin tended to reflect the circumstances of older investors generally. For instance, the need to access investment income

for an approaching retirement. Eighty-one percent of those who were not interested in Bitcoin thought the currency was too volatile, and 84% said it was too risky for their investment profile. This group of investors was also much more likely to identify as risk-averse, and keeping with the trend of investors preferring to decrease risk in investment portfolios as they get older. Demographics are an important consideration when evaluating the overall market opportunity for Bitcoin investment products. While older investors currently hold more wealth than their younger counterparts, younger investors stand to inherit considerable wealth from older generations in the future. Both Suruli associates and Caudwell Banker estimate that $68 trillion will be passed down from

baby boomers to Gen X and millennials within the next few decades. By 2030, millennials who are much more inclined to consider Bitcoin investments will hold five times as much wealth as they do today. So while younger age groups may invest less now, understanding how wealth might be reallocated in years to come, is not to be ignored. That said, not all concerns about Bitcoin are limited to those age 55 and up. 70% of all survey respondents indicated a belief that because Bitcoin is digital, it is vulnerable to cyber attacks. However, when properly secured, Bitcoin is proven impossible to hack, even for the most sophisticated assailants. Investors may be conflating cyber attacks with exchange thefts, where hackers have been able to take advantage of inadequate security measures to access

digital wallet passwords, essentially a digital bank robbery of a specific exchange or service provider. But investors do not doubt the security of the dollar because some people have robbed banks and successfully taken money from vaults. While security is a critical issue, it is not an insurmountable one, and substantial progress has already been made as security measures and best practices have improved the last several years. 63% of investors also cited concerns about Bitcoin's regulatory status and 62% of investors inaccurately believed there is no government oversight of Bitcoin. The reality is that the government agencies in the U.S. and around the globe have regulated many aspects of the Bitcoin ecosystem, particularly exchanges the critical

infrastructure where fiat and digital currencies are exchanged for Bitcoin. In recent years, regulators, financial institutions, and investors have all taken steps to enable adoption of Bitcoin investment products. In the U.S., the IRS, CFTC, Financial Crimes Enforcement Network, and SEC, and the Federal Reserve have all recognized and addressed Bitcoin in some manner. And as of 2019, 32 states had introduced her past legislation accepting and promoting the use of Bitcoin. Additionally, in a recent fidelity survey of institutional investors in the U.S. and Europe, 36% of respondents said they were currently invested in digital assets, and six out of 10 believe digital assets have a place in their investment portfolios. Final thoughts on the growing interest

in Bitcoin. Over the course of a single year, Bitcoin seems to be gaining acceptance among the investing public. More than half of U.S. investors, a market of nearly 30,000, million households, each with more than $10,000 in investable assets, have expressed interest in investing in Bitcoin. As equity markets experience sustained volatility and once strong correlations between various asset classes have begun to unravel, Bitcoin appears to be gaining steam as market participants seek investments that can act as safe havens within a portfolio. Currencies that are immune from government-control monetary policies have been an idea that is looking more promising by the day, even in developed nations. And while financial advisors

play an important role in this ecosystem and may play a bigger role in the years ahead, the data shows that this digital currency revolution has been largely driven by the ground up by a new generation of well-educated investors who leverage the vast amount of information available online to inform their investment choices. As this digital generation grows up, it's only natural that they may turn to more digital forms of value. The fact that the majority of current and potential Bitcoin investors haven't even reached their prime earning years yet, coupled with the $68 trillion dollar wealth transfer set to take place over the next 25 years, reveals a potentially huge opportunity for those who see the possibility for long-term growth in Bitcoin.

Digital currencies have come a long way in the last decade, but the growing momentum from investors interested in this digital asset class suggests that its brightest days may still be ahead.