Bitcoin is an ‘Uncorrelated Hedge’ which the March Crash Further Reinforced: Chamath Palihapitiya
Chamath Palihapitiya, who sees bitcoin as a “schmuck insurance,” doesn’t think the Coronavirus pandemic (COVID-19) is bitcoin's moment.
According to him, “there is no seminal event,” and people waiting for one only creates more speculation than is healthy for bitcoin.
It's a bunch of small things that eventually add together and bring down the entire way in which the financial infrastructure of the world works, he said.
It's a pattern, and when you see it, you just have to be prepared to hedge it, be on the other side of it, hope the pattern stops, because quite honestly, if your bitcoin bet pays off, it will be cataclysmically destructive for the world, said Palihapitiya.
Bitcoin – “Fundamentally Uncorrelated”
He explained that with “schmuck insurance,” he just wants something that “will protect our wealth; however, much that it is we have.” The CEO of Social Capital and chairman of Virgin Galactic on Laura Shin’s podcast: “Unchained” said,
“If people have been hard-working with their head down, they should have an opportunity to make sure that they don't get wiped out if the government itself just continues to make a string of bad decisions that then have rising consequences.”
Bitcoin to him is the only thing that so far has been “really fundamentally uncorrelated” to not only the government’s but their decision-making process.
At the end of the day, every other asset class – be it equities, debt, real estate, or commodities, “they're all tightly coupled to a legislative framework and an interconnectedness in the financial markets.”
It's almost like governments are betting against the ruling class in some ways. As such, he advises having a small amount of insurance that pays off 1000 bucks to a buck.
“You want these massive asymmetric payoffs because you want to be sure that a small amount of insurance can basically make you whole,” and that's why the early Facebook senior executive says one should put one percent of their portfolio in bitcoin. But also advises to never look at it or its price.
Bitcoin Sell-off Only Reinforced This
But what about the March sell-off, when bitcoin crashed along with the stock market. For Palihapitiya, the event just “reinforced” that BTC is an uncorrelated hedge.
This is because the crypto market has the same people day trading or speculating as in other financial markets. As such, it will suffer the same psychological ebbs and flows, he said. The venture capitalist also stated,
“It wasn't surprising in my mind that bitcoin traded off when equities traded off, it just goes to show you that there is a portion of people that view it as a hedge and will never look at it and then there's a much larger portion, to be honest, who view it as a financial instrument that speculates on and makes money on in short-term increments.”
But this will change over time with long-tail adoption when millions of people neither have the time or the inclination to care what BTC does on a daily basis, and that will be very good for bitcoin, he said.
As for other cryptocurrencies in the market like Ethereum, Palihapitiya doesn't see any merit in them because, in any market, they can win, sure, but they can never win like the category killer.