The one about Bitcoin

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Show hosts Dan Mikulskis and Mary Spencer welcome Jos North from Ruffer to talk about the investment thesis behind Bitcoin, what its future holds and the risks.

What is Bitcoin?

  • Decentralised form of money
  • Could become digital gold
  • $700bn+ in market capitalisation now

Ruffer’s investment thesis

  • In a world of high debt, inflation is a worry and investors could be vulnerable
  • Bitcoin could be a store of value like gold
  • Even if many institutions start believing this, Bitcoin investments will be beneficial
  • Increasing institutional adoption is a core part of the investment case
  • Thesis has to be qualitative – the data is not good enough nor reliable enough yet
  • Increasing correlation with gold caught Ruffer’s attention

Why Bitcoin not other coins?

  • The scarcity of supply is key to the “digital gold” thesis

Safe custody of crypto assets – is it a risk?

  • The system has matured at an incredible pace. Most of the stories were very early adopters where you owned bitcoin personally with a private key. Now there are institutional grade custody solutions. Exchange traded products exist, futures market exist, central banks charters are being given for digital assets. There has been lots of development very recently.
  • Central to the thesis is regulating going down the path of making this more mainstream: forcing the bad actors out, to build trust in the asset base and solid foundations.
  • The whole ecosystem is more professionalised now than in 2017, there are less spammy/scammy type actors.

Bitcoin was interesting in 2017 but was uninvestible for institutions. That changed and matured a lot post March/April 2020.

New head of SEC used to teach a crypto class at MIT, which steeped crypto. This SEC admin will be looking at it and regulations are likely to follow.

Transaction costs?

Not as hard to transact as you’d think and Ruffer has seen good liquidity. The costs, including transaction costs and custody, are not out of the range of other asset classes.

Will it be crypto or will it be Bitcoin that develops into an asset class?

The problem with crypto is that it’s hard for a currency to be outside state control. Digital pounds and dollars are definitely coming. One risk around Bitcoin was that it wouldn’t be allowed to exist outside government control. But given that Bitcoin is not developing into a transactable currency and is becoming more a store of value, Ruffer think the window of opportunity is widening for Bitcoin to survive as a digital gold.

The digital asset ecosystem in the US might be allowed to exist as the US and the west are far behind China. Therefore it will be more likely to be supported as a way to jump start that process to harness the innovation and developments in the private sector.


The main one is that the regulatory approach goes full circle and clamps down. If it can’t become an institutional asset class then the “digital gold” thesis will break. There are cyber attack risks but these are existential to Bitcoin.

There are also macro risks. If we don’t move into inflationary world - maybe a Volker-like move from the Fed that hikes rates to prevent inflation - then the adoption of Bitcoin might stall and prices could suffer.

Potential milestones for the transition

  • The time is now or the next couple of years as macro conditions are fertile for it to happen now. If not now then when?
  • Milestones: new institutions making positions public, which would be expected to continue.

What about environment and social considerations?

Bitcoin’s reputation isn’t representative here. Bitcoin mining is energy intensive, 90% of Bitcoins that will ever be mined have been mined (the networks still need to be maintained). We would expect transactions to go down as it will become a cornerstone of portfolios, so it will require less energy. But today it is still energy intensive - think about it environmentally relative to gold: Bitcoin consumes 40% energy of the gold industry. And in practice Bitcoin mining moved to the cheapest energy which quite often is stranded renewables. But sometimes it’s coal. It's hard to know how much energy used is renewable - 30-70% is probably renewable. The physical impact on the world of Bitcoin mining is far less than gold mining.

From a social perspective, there is a disconnect on reality vs reputation. Reputation is illicit activity, that’s not the case here as it represents less than 1% of transaction and is dwarfed by use of cash for such purposes. Bitcoin is a bad instrument to use in criminal activity as the record of the transaction is permanently on the public blockchain. Part of the regulatory drive is to force the bad actors out as there are now blockchain analytics firms working to track the bad actors. It’s not anonymous but it is pseudonymous.

One key thing to take away

The debate on Bitcoin is ferociously polarised, but it’s now possible to have the conversation without being so polarised. It’s not the best thing, yet it’s not the worst thing. It could help investors in an inflationary world and deserves a small allocation in a multi-asset portfolio.

Most underappreciated thing 

Being able to think along multiple timeframes and think accordingly. The industry is set up to think about the near term, but that gives opportunities for investors. 


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