- Travis Kling is the Chief Investment Officer of Ikigai, a crypto asset management firm.
- Traditional stocks and cryptocurrencies are too correlated for bitcoin to be an inflation hedge, says Kling.
- Former Point72 portfolio manager breaks down the bull case for ethereum.
Bitcoin’s market dominance hit a four-year low on Thursday.
Trading at $19,856, the cryptocurrency has not held such a small market share since March 2018. According to CoinMarketCap, Bitcoin accounted for 39.06% of the market with a capitalization of $387.85 billion.
However, all major cryptocurrencies lost value, with the industry’s value down by nearly two-thirds from its peak. Both ethereum and bitcoin are down more than 70% from their all-time highs, respectively.
Travis Kling, CIO of cryptocurrency valuation management firm Ikigai, says bitcoin’s investment climate is at its weakest in years.
“Bitcoin investing is the hardest I’ve done in the five years I’ve been paying close attention to it,” a former Point72 portfolio manager told Insider. “It was not a CPI inflation hedge.”
Maximalists presented bitcoin as an inflation hedge due to its fixed supply of 21 million and a store of value comparable to alternative investments such as gold or fine art.
Interest rates have been low throughout Bitcoin’s 13-year history, potentially not testing this story until recently. As economic factors stirred the markets, cryptocurrency’s high correlation with traditional stocks proved otherwise.
“I didn’t expect it to be unrelated, although I didn’t expect the correlation to be this strong,” Kling said.
As the Federal Reserve continues to raise interest rates, investors are generally risk-on. The S&P is on pace to cut three consecutive quarters of losses, a streak not seen since the 2008 financial crisis. Policymakers expect rate hikes to continue next year, at about 1.5 percentage points above current levels, according to the Fed’s latest forecast.
“It’s all a trade,” he said. “It’s Jay’s world right now, and cryptocurrency will live and die by it, along with every other asset on planet Earth,” he added, referring to Fed Chairman Jerome Powell.
Kling told Insider that there is “multi-pronged macro risk” bleeding into cryptocurrency markets as well, citing tough macro conditions such as an uncertain geopolitical climate, a looming energy crisis in the EU and dovish monetary policy.
If not Bitcoin, then what?
Bitcoin’s recent market cycle has “profoundly underperformed,” Kling says, and its dominance over the market could continue to wane as the Fed moves into a “tapering cycle.”
“It would be my strong case that when this whole space collapses again, bitcoin will underperform and in that case make new lows in market dominance,” says Kling.
Ren Yu Kong, DeFi portfolio manager at crypto hedge fund BKCoin Capital, predicts that ethereum could overtake bitcoin in terms of market cap in the next five years.
“If you asked any investment professional earlier this year, the de facto answer was definitely dollar cost averaging to BTC,” the 25-year-old previously told Insider. “If you really want to risk a little bit more, you can put some into ETH. I think that’s definitely changed now.”
However, Ethereum’s market cap is currently half that of bitcoin. Bitcoin’s market cap is $372 billion, while Ethereum’s is $162 billion.
Some executives are even more bullish on ethereum, believing it could overtake bitcoin in market value within the next year.
In a note to clients in August, Fundstrat’s vice president of digital assets, Sean Farrell, said the firm was on a “ticking” watch as bitcoin continued to underperform and ethereum transitioned from its Proof of Stake consensus mechanism to Proof of Stake.
“We believe that, both narratively and fundamentally, ethereum now has a good chance of surpassing bitcoin in market price over the next 12 months,” Farrell said.