Bitcoin is gaining momentum as an inflation hedge, also among institutional investors. Star investor Paul Tudor Jones explains why his hedge fund has recently invested in Bitcoin. 

Bitcoin reminds him of gold in the 1970s, said Paul Tudor Jones, when he explained his latest strategy shift to investors. His Tudor BVI Fund has recently invested part of its capital in Bitcoin Futures. 

Jones sees Bitcoin as a hedge against inflation, which he believes is likely to happen, given the current monetary policy. “The best profit-maximizing strategy is to own the fastest horse,” says Jones. “If I am forced to forecast, my bet will be Bitcoin.”

2020 is not 2008: Money supply is expanding rapidly

In a report titled “The Great Monetary Inflation,” Jones refers to the $3.9 trillion in monetary stimuli since February. This is equivalent to about 6.6% of global economic output. What Jones is most concerned about is the enormous speed with which this new money has been injected into the economy.

In contrast to the financial crisis in 2008, he says, banks are now capitalized more strongly and can issue more loans due to quantitative easing. As a result, the money is entering the real economy, increasing the M2 money supply. Even if the temporary decline in economic demand keeps consumer prices stable for the time being, Jones expects inflation to rise in the long term.

Source: Tudor Investment Corporation

In addition, debt levels of the private and public sectors have increased massively, which makes it more difficult for central banks to raise interest rates after the crisis without triggering a wave of bankruptcies and mass unemployment. The instruments of the central bank to prevent inflation are thus limited.

Source: Tudor Investment Corporation

Bitcoin meets the criteria to be an effective store of value 

This analysis brings Jones to Bitcoin. He had already invested in the asset in 2017 and sold his holdings before Bitcoin peaked at nearly $20,000. At that time, he invested in Bitcoin “for fun,” today, however, he sees it as a sustainable store of value. Jones points to four characteristics of a reliable store of value, which are purchasing power, trustworthiness, liquidity, and portability. He believes Bitcoin meets all of these criteria. 

I am not a millennial investing in cryptocurrency,” writes Jones. “But a baby boomer who wants to capture the opportunity set while protecting my capital in ever-changing environments.” 

Jones also mentions that COVID has accelerated the digitization of currencies worldwide. For example, China was the first of the leading economies to issue a digital currency, and Facebook has announced to launch Libra 2.0. As a result, Jones says, digital wallets will soon become a global standard for investors, making it easier to hold and trade Bitcoin.