by Bryan Perry

February 17, 2021

As if all the rage surrounding Bitcoin didn’t need another catalyst for investor excitement, news of Elon Musk buying $1.5 billion in the leading crypto currency swept over the digital currency world last week, pushing its price above $48,000 for the first time. Musk was following in the footsteps of Square Inc. (SQ) and MicroStrategy Inc. (MSTR) in buying Bitcoin for their respective corporate treasuries.

More billionaires have started to show support for Bitcoin in recent months. As Cointelegraph reported in November 2020, “the frenzy around Bitcoin among institutions and smart money comes from the properties that make it an efficient, but perhaps more importantly, unconfiscatable store of value.”

Bitcoin is liquid, decentralized, easy to trade, transfer and store securely. These characteristics allow it to operate as a practical safe-haven asset and a hedge against inflation with a low barrier to entry. It has been described as like walking around with a Swiss bank account in your pocket – which carries great appeal.

Mr. Musk is also considering allowing buyers of Tesla autos to pay in Bitcoin. Not to be outdone, MasterCard Inc (MA) announced late last week that it is evaluating having its vendors accept purchases in Bitcoin and other crypto currencies. PayPal Inc. (PYPL) started allowing payments via Bitcoin to its 35 million vendors around the world in the third quarter of 2020 and the stock has soared since.

Wall Street is under increasing pressure to allow for the investing and trading of crypto currencies directly on mainstream trading platforms. Investors want to trade crypto currencies at Schwab, Fidelity, TD Ameritrade, E-Trade, etc. which is putting fresh heat on these firms to accommodate their clients.

At present, Schwab, TD Ameritrade and Interactive Brokers allow for trading in Bitcoin futures, while Robinhood, Coinbase and, to some extent, TradeStation allow for the buying and selling of crypto currencies directly. Trading Bitcoin futures offers higher reward, but it also comes with higher risk. PayPal has recently jumped in the game, permitting the buying and selling of Bitcoin on its platform.

These firms that I’ve just named are familiar names that most investors recognize. There are also now over 100 forex brokers around the world where Bitcoin and all other cryptocurrencies can be traded.

According to Forex.com, the “Best Bitcoin Brokers For 2021” are:

  • eToro– Best overall for crypto trading
  • Swissquote– Trusted global brand, diverse offering
  • IG– Excellent offering, most trusted
  • City Index– Great all-round offering
  • AvaTrade– Multiple trading platform options
  • XTB– Best customer service, great platform
  • HYCM– Over 60 crypto CFDs offered

One can look at this sorting-out process similarly to how discount brokers (or commission-free trading) impacted all the major brokerages. Schwab was first to launch its trade-for-free campaign, roiling the industry overnight. While Fidelity and others reduced their trading fees, it wasn’t long before they had to throw in the towel and be content to profit on bid/ask spreads, where they do just fine.

No investment bank or brokerage firm wants to hear that sucking sound of assets under management (AUM) leaving the house, and now – with billionaires, corporations and institutional investors allocating large-scale capital to Bitcoin – those fund flows are leaving big names like Goldman Sachs, JP Morgan and Morgan Stanley and moving on to the largest cryptocurrency exchanges.

Navellier & Associates owns Tesla (TSLA) in one account, and JP Morgan, per client requests in managed accounts, we do own PayPal Inc. (PYPL) in managed accounts. Navellier does not own Square Inc. (SQ) MicroStrategy Inc. (MSTR), Goldman Sachs (GS), Morgan Stanley (MS), or MasterCard Inc (MA). Bryan Perry does not own Tesla (TSLA), Square Inc. (SQ) and MicroStrategy Inc. (MSTR), Goldman Sachs (GS), JP Morgan (JPM), Morgan Stanley (MS), PayPal Inc. (PYPL), or MasterCard Inc (MA).

Biggest Cryptocurrency Exchanges Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The top 15 cryptocurrency exchanges have assets of about $150 billion. The U.S. stock market has a market cap of over $50 trillion, so this crypto party is just getting started. To my knowledge, the only instrument traded at the biggest brokerages are shares in Grayscale Bitcoin Trust (GBTC), which are highly correlated to the price movement of Bitcoin. And like every other asset that trades on the NYSE and Nasdaq, GBTC is only open for trading at 9:30 am EST and closed for trading at 4:00 pm EST.

Bitcoin Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Wall Street has been watching from the sidelines since 2012 when central bankers first started publicly commenting on Bitcoin. The Street’s apprehension toward adopting crypto trading with in-house accounts has been the risk of sudden federal regulation or outright banning of crypto currencies altogether.

Grayscale CEO Barry Silbert believes that it’s highly unlikely that U.S. regulators will ban Bitcoin, stating that the regulatory environment for Bitcoin will get better rather than worse, thanks to a change in attitude brought about by Bitcoin advocacy groups. Silbert is a former Wall Street investment banker and is fully aware that when there is a tsunami-sized money-making opportunity, the Street won’t be left out. Silbert says, “For the first time ever, we are past the ‘ban Bitcoin’ perceived risk. There is enough support in D.C. from policymakers and regulators that Bitcoin has the right to exist and ultimately, you can’t shut it down.”

I’m not so sure. There is a history of government intervention when there are viable alternatives to the dollar currency. From 1933 to 1974, the U.S. made it illegal for citizens to own most forms of bullion gold to prevent gold “hoarding.” It was done to push citizens increasingly toward paper dollars that were at the time losing purchasing power. If there were ever a time when the value of the greenback was being called into question during modern times, it might be now, as unprecedented debt creation continues unabated.

The Dollar Index (DXY) is currently in a protracted downtrend, reflecting phenomenal U.S. government spending that will far exceed the pace of revenues, inflating the deficit to over $27 trillion and putting the current debt-to-GDP ratio at 136%. And while there is broad support for doing whatever it takes to push the U.S. economy forward, the downward inertia on the U.S. dollar cannot be ignored.

United States Dollar Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Because Bitcoin and other crypto currencies trade 24/7/365, the big brokerages have to determine if they want to staff up a crypto desk that never closes, not even on weekends. It’s a tall order, but it will likely come to pass, just as commission-free trading swept over the industry when Schwab first introduced it.

Cryptocurrencies Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Navellier does not own Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH) or Grayscale Bitcoin Trust (GBTC). Bryan Perry does not own Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH) or Grayscale Bitcoin Trust (GBTC).

We should also heed the sage thoughts of Bridgewater’s Ray Dalio regarding Bitcoin’s future, published in a note to clients January 28, 2021: “I greatly admire how Bitcoin has stood the test of 10 years of time, not only in this regard but also in how its technology has been working so well and has not been hacked.

“Still, to one holding digital/cyber assets at a time when cyber offense is much more powerful than cyber defense, the cyber risk is a risk that I can’t ignore. When the Department of Defense can’t protect its systems from being hacked, it would be naïve to be totally comfortable that one’s digital assets can’t be hacked, which is one of the advantages of gold-like assets and is one of the risks of all financial assets.”

Ray Dalio Image

Stay tuned for what should be a digital gold rush by Wall Street to be the first to market with a trading platform for direct cryptocurrency investing and trading. In doing so, these digital coins are very likely to increase in value, just on the new exposure alone. I assume crypto investors will consider accumulating some of these digital currencies before they hit Wall Street’s trading floors in front of the flood of new crypto investors to buy in. Like I said, this party is just getting started.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

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About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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