The rise—and fall and rise and fall and rise—of bitcoin in recent years has dragged the universe of cryptocurrencies out of the shadows of the internet and onto the radars of a range of mainstream financial market participants, including central banks and regulatory bodies, institutional investors and asset managers, merchants and electronic-payment providers, and smaller, less-experienced investors looking for a pathway to easy (digital) money. While First Eagle recognizes the potential for cryptocurrencies and similar innovations in a world marked by the continued debasement of fiat currency, we also are cognizant of the uncertainty inherent in existing forms of crypto at this point of development.

Key Takeaways

  • Key-Takeaway

    The mainstreaming of cryptocurrencies—and bitcoin, in particular—has accelerated since the onset of the Covid-19 pandemic. These digital assets have caught the attention of a broad range of financial market participants, driving the total crypto market capitalization higher by nearly tenfold.

  • Key-Takeaway

    With bitcoin and its ilk facing significant challenges in meeting the functionality of traditional fiat currency, some investors have instead turned to crypto as a vehicle for speculation.

  • Key-Takeaway

    While its limited supply has led some to see bitcoin as a store of value and potential hedge against inflation and the ongoing debasement of fiat currency, considering bitcoin in this context entails weighing the mostly theoretical benefits of a 12-year-old cryptocurrency against those gold has offered for millennia.

  • Key-Takeaway

    First Eagle believes bitcoin’s higher volatility, higher beta to equities and maturation-related uncertainties make it unlikely to be a binary substitute for gold at this stage of development.