【Observation】Wall Street institution mentioned Bitcoin 47 times, how did Paul Jones convince investors?

Table of Contents

Wall Street Legend: The Big Winner of 1987

Paul Tudor Jones II, born on September 28, 1954, is an early American hedge fund manager. Jones founded the investment firm Tudor Investment at the age of 25 and gained immense reputation for his outstanding performance during the financial crises of 1987 and 2008, achieving a record of over 99% annual returns for five consecutive years and 28 years without losses.

One of the legends he created was on October 19, 1987. Known as Black Monday, the stock market experienced a significant crash in a single day, with global losses estimated at $1.7 trillion, further triggering a major recession. However, Jones successfully predicted the crash and made a billion-dollar profit by betting against the market, earning him great renown. In the 2020 Forbes Billionaires List, Jones ranked 320th with a net worth of $5.1 billion.

A Message to Investors: Mentions Bitcoin 47 Times

The investment firm Tudor Investment, founded by Paul Tudor Jones, also performed well during the 2008 financial crisis. Years later, in May 2020, in a letter to investors, Tudor Investment mentioned that Bitcoin could be the dark horse as Jones sees it.

Within this 10-page letter to investors, the word "bitcoin" appeared 47 times, "gold" appeared 34 times, while "bond" only appeared once.

We have compiled the 47 mentions of "Bitcoin" in the letter and found that Jones is not exactly a cryptocurrency enthusiast. His interest in Bitcoin mainly revolves around its potential as a hedge asset, providing explanations to investors.

The content is as follows:

Bitcoin Could Be a Safe Haven (1/47)

This paragraph mainly describes the pandemic period, during which governments globally have been intervening in the markets through monetary policies (printing money), while also expanding the global debt scale. In his letter, Paul Jones stated:

"Traditional hedge assets like gold have performed well, and we believe investors will continue to seek hedge assets... Markets often react and contradict your prior experience. But remember, in the long run, profit and loss are always the winner. Considering this, in a world craving new hedge assets, the role of Bitcoin may become more significant."

Bitcoin Performs Well During High Inflation Periods (2-10/47)

This segment quotes a Bloomberg statistical chart to describe Bitcoin's favorable performance during periods of high inflation. The letter describes:

"Fourth on the list is Bitcoin - yes, Bitcoin. On the last day of April, its trading volume was $18 billion, and by any measure, it is an 'emerging' asset class." He expressed his interest in this list (see image) and indicated that during periods of high inflation, Bitcoin is likely to become mainstream.

He also mentioned that he is not a cryptocurrency enthusiast, but rather sees Bitcoin as a means to protect assets in an environment of constant change.

Based on its performance during high inflation periods, Paul Jones mentioned in the letter that this is the first time in two and a half years that he has considered it as an investable asset. The letter also touched upon the technical features of Bitcoin:

"A Bitcoin transaction takes an average of sixty minutes to confirm, making it more akin to money."

Note: Since a typical Bitcoin transaction requires confirmation from six blocks to reach its finality (irreversibility), with an average block time of ten minutes, hence the reference to sixty minutes.

Paul Jones believes that Bitcoin still needs to compete with gold, other fiat currencies, and even stores of value such as art and jewelry, asking investors to consider who the winners of the next decade will be?

He then mentioned the most quoted statement:

Evaluating Four Conditions for Storing Value (11-47/47)

The image above shows the total market values of various assets, ranked by size: global financial assets (stocks, bonds, etc.), cash, gold, and Bitcoin.

Jones emphasizes the need to consider which asset will be the winner of the next decade and suggests evaluating whether an asset possesses the function of "storing value" based on four conditions, including:

• Purchasing Power (30%)
• Credibility (30%)
• Liquidity (20%)
• Ease of Transfer (20%)

Based on these four characteristics' scoring proportions, the subjective scores from Jones's research team are as follows:

Purchasing Power

The report points out that when it comes to beating inflation, many believe the answer lies in high-interest financial assets. However, the current interest rates on financial assets are unable to keep up with the pace of inflation.

Regarding Bitcoin, Jones sees it as a paradigm of "scarce value appreciation" and the largest known asset with a limited supply and easy tradability in the world. He stated:

"Bitcoin's total supply cannot exceed 21 million coins, with about 18.5 million already mined, leaving only 10% to be mined. The halving of block rewards every four years will continue to slow down its circulation." Jones expressed surprise that their research team gave "almost zero" scores to fiat currencies. Their rationale is, since something loses value by 2% annually due to inflation, why hold onto it?

Credibility

Undoubtedly, Bitcoin scored the lowest in this category. Jones believes that Bitcoin is relatively young among the four assets, explaining:

Some mention that Bitcoin has 60 million users across 200 countries, but not everyone is convinced. It may come as no surprise that gold scored the highest in this category, given its millennia-long history.

Liquidity

"This score may take a decade to gain everyone's attention (circuit breaker)," Jones commented. Especially after the past two months' experiences, the importance of liquidity is evident. He pointed out:

As we are about to witness bankruptcies, unemployment, and an increase in the impoverished population, asset liquidity will be a crucial consideration in the coming years. Consequently, cash received the highest score here. Interestingly, Bitcoin is the only asset class that trades 24/7.

Ease of Transfer

Jones believes that both liquidity and ease of transfer are not major issues, but they become crucial during times of war and pandemic outbreaks, allowing high-value assets to transfer seamlessly across borders with almost no transaction costs. He remarked:

"Cash looks good, gold is acceptable, but too bulky, and there's nothing that beats Bitcoin, which can be stored in a smartphone."

As the evaluation concludes, Jones was not surprised that Bitcoin ranked the lowest, and what surprised him was that Bitcoin's market value is only 1/1,200th of "global financial assets (ranked first)," yet its total score is nearly 60% of it. This is why Jones sees potential in Bitcoin's price, mentioning:

Bitcoin scores 66% of gold, but its market value is only 1/60th of it. It seems like there's a discrepancy somewhere, and I guess it could be in Bitcoin's price.

He emphasized:

"A bull market is built on expanding buyers continuously, and Bitcoin's price will be based on whether its total holders will exceed the current 60 million people or not. The opportune time for Bitcoin to attract attention might be the launch of the Libra stablecoin and China's DCEP, making digital wallets widespread and thus making Bitcoin more understandable and usable."

Considering the current global economic reality, Jones believes that holding Bitcoin is an excellent way to resist the era of high inflation. Ultimately, the foundation of currency lies in "trust," and central banks must earn and maintain trust in the value of money. However, looking back at the history of currency devaluation, it is riddled with scars.

Jones emphasized that he is not a Bitcoin advocate, but under the unconventional monetary policies of recent times, he recognized Bitcoin's potential and adjusted the strategy of his Tudor BVI fund, allocating a single-digit percentage of the fund's net assets to Bitcoin futures.

He stated:

"Bitcoin reminds me of gold in the 1970s. At the time when I was just starting out in trading, gold futures were gradually maturing, much like Bitcoin today. In the early 1970s, gold experienced a sharp rebound, surging from $35 in 1971 to $180 by the end of 1974."

Jones compared the price trends of gold post-1973 with Bitcoin post-2016, where gold tripled in price since 1973 and dropped by 50% after 1975, similar to Bitcoin's correction after 2018.

Jones pointed out that based on the gold price trends at the time, it was an excellent buying opportunity, as gold broke through its previous highs after a correction, soaring fourfold. The red line in the chart below is highly likely to be the trend that Bitcoin is about to replicate today.

Possible Implications in the Letter

Lastly, an interesting point in the letter is the mention of "leave you weeping in the performance dust," which may be connected to the Book of Revelation in the New Testament.

Revelation 18:19 reads, "'And they will throw dust on their heads, as they weep and mourn and cry out: Woe, woe to the great city, where all who had ships on the sea were enriched by her wealth! For in a single hour she has been destroyed.'" This passage, known as "The Fall of Babylon," narrates the downfall of ancient Babylon, once hailed as the world's greatest city, due to excessive pursuit of self-interest and magnificence, leading to its ultimate destruction. The interpretation of this story by many is: "When humanity centers its culture on itself, that culture will begin to decay."

If this connection holds, the statements in the investor letter can be interpreted as investors' confidence in Wall Street, and even the entire traditional financial system, leading people to lose everything in a massive financial disaster.

Regardless of how the current world economy evolves and how Bitcoin performs, it seems that Tudor Investment is keen on offering its investors some new choices.

(This article was co-edited by editors Elponcho and Jim)