- Travis Kling is the chief investment officer at crypto asset management firm, Ikigai.
- Traditional equities and crypto are too coupled for bitcoin to be an inflation hedge, Kling says.
- The ex-Point72 portfolio manager breaks down the bull case for ethereum.
Bitcoin’s market dominance notched a four-year low on Thursday.
The cryptocurrency, which was trading at $19,856, hadn’t grabbed that little market share since March 2018. Bitcoin accounted for 39.06% of the market with a capitalization of $387.85 billion, according to CoinMarketCap.
All major cryptos have tumbled, however, with the industry’s value slashing around two-thirds from its peak. Both ethereum and bitcoin are off over 70% from their all-time highs, respectively.
Travis Kling, the CIO of crypto assessment management firm Ikigai, says that bitcoin’s investment case, however, is the weakest it’s been in years.
“Bitcoin’s investment case is the most challenged I’ve seen in the five years that I’ve been paying close attention to it,” the former Point72 portfolio manager told Insider. “It was not a CPI inflation hedge.”
Maximalists have touted bitcoin as an inflationary hedge because of its fixed supply of 21 million and its store of value, comparable to alternative investments like gold or fine art.
In bitcoin’s 13-year history, interest rates have been low, potentially not testing this narrative until recently. And as economic factors roil markets, crypto’s high correlation to traditional equities has proven the contrary.
“I did not expect it to be uncorrelated, although I did not expect the correlation to be this tight for this long,” Kling said.
As the Federal Reserve continues to hike interest rates, investors seem risk-off across the board though. The S&P is we pace to notch three consecutive quarters of losses, which hasn’t occurred since the 2008 financial crisis. Policymakers anticipate hikes to continue into next year, according to the Fed’s most recent outlookwith rates about 1.5 percentage points from their current level.
“It’s all one trade,” he said. “This is Jay’s world at the moment and crypto is going to live and die by him, along with every other asset on planet Earth,” he added, referring to Fed chairman Jerome Powell.
There is a “multipronged macro risk” that’s been hemorrhaging crypto markets as well, Kling told Insider, citing harsh macro conditions like an uncertain geopolitical climate, a looming energy crisis in the EU, and hawkish monetary policies.
If not bitcoin, then what?
Kling says that bitcoin “deeply underperformed” last market cycle and when the Fed goes into an “easing cycle” its dominance over the market could continue to decline.
“When this whole space rips off again,” Kling says, “it would be my strongly held base case that bitcoin is going to underperform and that, in that situation, it will make new lows in market dominance.”
Ren Yu Kong, a DeFi portfolio manager at crypto hedge fund BKCoin Capital, predicts that ethereum could flip bitcoin by market cap in the next five years.
“At the start of this year, if you asked any investment professional, the de-facto answer was definitely dollar cost average into BTC,” the 25-year-old previously told Insider. “If you really wanted to take a bit more risk, you could allocate a bit to ETH. I think that’s definitely switched up now.”
Ethereum’s market cap is currently half of bitcoin’s, however. Bitcoin’s market cap is notched at $372 billion, while ethereum’s is at $162 billion.
Some execs are even more bullish on ethereum and believe that it could overtake bitcoin in market cap within the next year.
In an August note to clients, Sean Farrell, the vice president of digital assets at Fundstrat, said that the firm was on “flippening” watch as bitcoin continued to underperform and ethereum transitioned from a Proof of Work to Proof of Stake consensus mechanism.
“We believe that from both a narrative and fundamentals perspective, ethereum now has a good chance of surpassing bitcoin in market cap over the next 12 months,” Farrell said.