Anthony Pompliano Believes Pension Funds Should Purchase Bitcoin, Here’s Why
Anthony Pompliano Believes Pension Funds Should Purchase Bitcoin
Bitcoin (BTC) has been growing around the world as a virtual currency and also as an investment tool. Several individuals have been purchasing Bitcoin because of different reasons. The founder of Morgan Creek Digital, Anthony Pompliano, says that capital allocation in virtual currencies is advantageous.
Three weeks ago, Morgan Creek Digital issued a $1 million bet for an in-house cryptocurrency index fund. This fund will be covering the vast majority of the value of virtual currencies. The main intention is to outperform the Standard and Poor 500 (S&P 500) index in 10 years. If the index performs better, they will be receiving $1 million. If the S&P 500 performs better than the crypto index in ten years, it will have to pay $1 million to the opponent accepting this bet.
In a recent article Pompliano says that every pension fund should buy Bitcoin. At the moment, there are hundreds of millions of employees around the world that are linked to pension funds that will be saving a set amount of money after retirement. However, these pension funds seem in bad conditions for the future.
There is a problem that is just starting. The gap between revenue and expenses is getting worse year after year. There are lower birth rates, that means fewer people working, and a longer life expectancy, more individuals asking for their funds. Furthermore, as life expectancy grows, it is more difficult to pay for these individuals since retirement age does not change. In the future, the trend is expecting to continue, generating further pressure on pension funds.
Pompliano went on explaining that it might be possible to increase the number of contributions that workers pay every single month. Another way of improving the retirement funds is for them to invest in riskier assets, generally those that have higher rates of return.
One of the solutions proposed by Pompliano is for pension funds to buy Bitcoin since the digital currency is a non-correlated asset and it has an asymmetric return profile.
About Bitcoin being a non-correlated asset, he wrote:
“This is the holy grail of any portfolio. Bitcoin’s current 180-day correlation to the S&P 500 is 0 and the correlation to the dollar index is near zero as well. Investing in non-correlated assets should reduce the risk and increase the returns of a portfolio according to modern portfolio theory.”
Alex Krüger, a recognized analyst in the virtual currency space, wrote a tweet in which he mentions that the S&P 500 has been correlated in the short term with Bitcoin. However, in the long term, the correlation is around 0.
As of late bitcoin has been positively correlated to the S&P 500. However, short term correlations are unstable and fluctuate around zero, and the 180 day correlation stands right at 0. pic.twitter.com/AW1GdQPLMV
— Alex Krüger (@krugermacro) December 3, 2018
He has also said that Bitcoin is an asymmetric asset because it can grow much more than fall. It is possible to lose the capital invested if it reaches zero, but the growth rate is 100x in the future if the asset becomes something similar to gold or if it becomes almost mainstream.
During the last 10 years, Bitcoin was the best offering asset in the space, outperforming all the others. Furthermore, it was able to beat the S&P 500 for the last 10, 5 and 2 years. As the virtual currency has a fixed supply, it is possible for it to keep outperforming other traditional assets.
However, this seems very positive, Pompliano warns that there are several risks for investors. Each of the funds should evaluate their situation and goals for the future and take decisions accordingly.
Clearly, it will take time for pension funds to start investing in Bitcoin. Many other companies could follow this trend, but it will not start in the coming days. Pompliano says that stakeholders and asset managers need to learn more about Bitcoin and virtual currencies if they want to enter the crypto market.
Bitcoin has the potential to change this crisis that funds are currently experiencing. With its asymmetric return profile and non-correlation with other assets, it could help millions of individuals improve or sustain their situation in the coming years.