Thread by @bopinion

Now that Bitcoin has topped $20,000 for the first time, should you shift your hard-earned cash into digital currencies?

History suggests caution should be your watchword, no matter how strong the FOMO may be trib.al/Ytoljve

Institutional investors might be starting to take cryptocurrencies more seriously.

One River Asset Management has set up a fund company that will have about $1 billion in Bitcoin and fellow digital coin Ether by early next year suggests trib.al/Ytoljve

There’s clearly serious money involved:

CEO Eric Peters told our colleague Erik Schatzker that billionaire hedge fund manager Alan Howard is buying a stake in the new business, called One River Digital Asset Management trib.al/Ytoljve

But before you race to open a digital wallet, look back to what happened to Bitcoin last time it approached these levels:

📈A surge of 1,000% in 2017 took its value to $19,000
📉A year later, it had dropped to less than $3,500
trib.al/Ytoljve

Hedge fund managers can afford to dabble in crypto.

The language Peters used to describe the trade is the stuff of macro hedge fund shop talk, such as the “convexity” of volatile trades that soar in relation to other indicators like interest rates trib.al/Ytoljve

That’s reminiscent of other wealthy investors climbing aboard the bandwagon, such as Paul Tudor Jones, who compared Bitcoin to “investing in Google early.”

Even if they get burned on a big bet, it’s money they won’t miss trib.al/Ytoljve

But the Robinhood crowd — investors who may have made out like bandits this year by trading stocks from their sofas —should beware.

While Bitcoin is great as a billionaire’s speculative plaything, it’s hardly a safe haven investment for the average punter trib.al/Ytoljve

🍕Few people are going to buy pizza or coffee using a method of exchange that is capable of falling almost 50% in U.S. dollar terms in a matter of days, as it did in March when Covid-19’s first wave hit the West trib.al/Ytoljve

Even as PayPal or Square strive to bring Bitcoin to the masses, very few vendors directly touch the stuff.

Merchants made up only about 1% of crypto activity in North America between mid-2019 and mid-2020, while exchanges accounted for almost 90% trib.al/Ytoljve

Champions of “digital gold,” push the narrative that Bitcoin serves as some kind of metaphorical mattress under which everyone should stuff rapidly depreciating dollars or euros.

But how safe is this safe haven? trib.al/Ytoljve

A study by the Kansas City Fed comparing bonds, gold and Bitcoin between 1995 and Feb. 2020 found that:

💰Treasuries behaved “consistently” as a safe haven
🪙Gold did so “occasionally”
🚫Bitcoin got a “never” trib.al/Ytoljve

The artificial scarcity that underpins Bitcoin helps push its price higher in the boom times; it does nothing to prevent a tumble when whales cash out.

Those who dive in will have to hope they’re in this for the long haul trib.al/Ytoljve