Insights from CK Zheng – former Global Head of Risk for Credit Suisse and current co-founder of the hedge fund ZX Squared Capital.
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Below are a few notes from CK to investors, outlining the institutional demand we are seeing for BTC, expected adoption globally, and how interest rates will likely impact the next bull run. For some quick content, CK’s fund, which uses options and derivatives to trade BTC and ETH, has outperformed Bitcoin by 60% in absolute terms since 2021 (without leverage), has a realized volatility that is only half of Bitcoin’s, and a Sharpe ratio that is 2x.
- Bitcoin price could drop post the halving. As crypto miners’ revenues got cut by half, they need to more aggressively sell the newly mined bitcoins to pay debts when their debt levels are too high. But these selling are temporary by nature. Any further pullback in bitcoin price is a great entry point for investors to buy. We believe bitcoin’s current level is close to a near term bottom.
- The institutional investor’s demand is clearly rising post the SEC’s approval of the spot bitcoin ETFs. This demand is volatile as the bitcoin price is extremely volatile. But we believe the institutional investor’s demand will gradually increase for the next decade as bitcoin’s adoption continues from today’s 3% to around 15% of the world’s population by 2035.
- The current bitcoin halving cuts the supply of mined bitcoin number from 900 per day to 450 per day. This will create further imbalances between the demand and supply of bitcoins when more institutions need to allocate to this new asset class. If 5% of institutional assets are allocated to bitcoins in the long term, the imbalances will drive the bitcoin price to $150,000 in the next 18 months.
- The timing of bitcoin’s next bull run depends heavily on the Fed’s interest rate cut late this year or early next year.
