Here’s what 1 billionaire thinks about Bitcoin

Over the past few decades, Paul Tudor Jones has amassed a fortune of a whopping $7.5 billion. Jones began trading cotton futures on the New York Cotton Exchange and has since built a career on his understanding of macroeconomic factors such as interest rates and currencies.

But now Jones sees a new frontier full of opportunity. While it’s not often you see more traditional investors embracing financial innovation, Jones believes “it’s hard not to be long crypto.”

While he used crypto as an umbrella term in his statement, the hedge fund billionaire is one of the most vocal supporters of the most prominent and valuable cryptocurrency — Bitcoin (BTC 2.59%). Jones has repeatedly claimed that he allocates about 2% of his massive portfolio to Bitcoin and could see benefits in dedicating 5% of a portfolio to Bitcoin exposure.

Jones believes Bitcoin has a bright future even though it is down more than 60% year-to-date. He has two primary hypotheses surrounding the promise of Bitcoin and how it will further cement itself as a legitimate resource in the coming years.

Jones’ case for Bitcoin

The first has to do with what he calls intellectual capital, which refers to the increasing movement of intelligent and talented individuals into the crypto industry. Jones believes that the world’s most talented engineers, developers and entrepreneurs are recognizing the potential that crypto has in an increasingly digital world and are starting to take more jobs in the industry. It is similar to a trend that happened in the 1990s, when the internet was in a massive development.

The second reason he is confident Bitcoin will continue to grow has to do with the current macroeconomic and political environment unfolding today. In an interview on CNBC this week, Jones highlighted that the current decade is already shaping up to be very different from the previous one (2010 to 2019), which was dominated by central bank experiments with monetary policy. In his view, the dominant theme of the coming decade will consist of economies around the world dealing with the consequences of this experimentation.

When periods of economic instability occur, as we saw during the Great Recession and the Covid-19 pandemic, the federal government steps in to keep the economy afloat. To stimulate the economy, the government uses various financial mechanisms, and Jones’s concern is that the consequences of implementing these policies are not always fully understood.

A hedge against government financial intervention

The primary tools available to the federal government to stimulate economic growth are interest rate cuts and more recently quantitative easing.

Quantitative easing puts more money into circulation through the central bank’s direct purchase of government-backed securities, such as bonds. This approach was used when, with interest rates close to zero, the government needed to further stimulate the economy. These injections of liquidity into the economy, under the auspices of the Federal Reserve, allow the banks to lend more and on easier terms.

Jones bases his belief in Bitcoin because of the potential consequences of this monetary policy. Until the last decade or so, a central bank had never engaged in this kind of policy experiment. The depth and extent of the impacts of this policy are not fully known or understood. Look no further than the argument from Fed officials that rising inflation in early 2021 was “transient,” even though it has persisted and is now near four-decade highs.

Jones believes the rest of the 2020s will be dominated by these consequences. As they become clearer, he believes more people will find assets like Bitcoin more desirable because it is not subject to gambling. Bitcoin’s supply is limited; it cannot be controlled or tampered with to serve the needs of a particular nation, and it can be accessed by anyone with an internet connection.

For those reasons, Jones still believes it’s an investment opportunity even if the 2020s “will be the exact opposite of what we experienced in the last decade.” Instead, the opportunity will be in Bitcoin and not your typical stock or bond.

Keep it simple

Investing doesn’t have to be complicated. Gaining insight into these types of macro trends from the world’s most successful investors is an easy way to keep up with today’s developments and opportunities.

As one of the world’s most prominent investors, Paul Tudor Jones believes that an increasingly digital world and the realization of monetary policy experiments will lead to a greater desire for an asset like Bitcoin – one that could send it to prices “much higher than it is today .” Buying at today’s prices can be a great opportunity to prepare for an economy that Jones believes we can live with for the rest of the decade.