Spark Global Limited reports:
Paul Tudor Jones is known in mainstream investing circles for his cowboy futures trading and his correct call for the Black Monday market crash of the 1980s. Jones has a net worth of about $5 billion, thanks to successfully managing his own funds over the past few decades.
According to Jones, the situation is this: Central banks have only printed 6.6 per cent of global GDP in the past few months, a situation he calls “great money inflation” (GMI).
GMI’s launch comes at a time of high global debt. Jones cited congressional projections that the U.S. government debt will reach a new high in 2021. Corporate and consumer debt was also at an all-time high before the pandemic.
Interest rates and inflation
As central banks have printed trillions of dollars around the world, the total supply of money has risen. It is common sense to expect inflation to follow. While there are many factors at work, this is basically the core of Jones’s argument, backed up by some nifty charts and economic theory.
Inflation? Enter bitcoins
Sceptical investors have long loved gold. You can’t print gold, so the supply of gold is, by definition, limited. Jones recognized this and called gold “a store of value for 2,500 years.”
Bitcoin is similar in this respect. Bitcoin’s protocol states that only 21 million bitcoins can be mined in total. As of This writing in May 2020, 18.5 million of these have been mined.
Rating bitcoin as a store of value
Jones tested bitcoin’s store of value using the following criteria, taken from his investor letter:
Purchasing power – How does this asset retain its value over time?
Integrity – How has it come to be recognized over time and universally as a store of value?
Liquidity – How quickly can assets be converted into trading currencies?
Portability – Can you move this asset geographically if you have to do so for unforeseen reasons?
Jones contrasted bitcoin with the following inflation hedges (excerpted from his letter):
The US Treasury yield curve
U.S. equities cyclical/defensive
The purchasing power
Mr Jones recalls the 1970s, when inflation was in double digits. At a time when most financial assets, such as stocks and bonds, were not growing as fast as inflation, the currency carry trade was the main way to escape it.