Bitcoin: A Novel Economic Institution

This paper lays out the case for Bitcoin. In Part 1, we describe how the Information Age gave rise to Bitcoin, a novel economic institution designed to challenge legacy financial systems. We explain how legacy financial institutions, which have evolved through a trust-based model, appear to have fallen short of the four economic assurances necessary for a predictable financial system. We then analyze Bitcoin’s behavior in relation to these four economic assurances and explain why we believe it is designed uniquely to satisfy them.

After explaining the merits of Bitcoin as a novel institution in Part 1, we assess the investment merits of bitcoin as a monetary asset in Part 2. While many investors question its merit as an investment, we believe that bitcoin is the most compelling monetary asset to emerge since gold. We begin our analysis by detailing the evolution of bitcoin’s price and sizing its potential market opportunity over the next five years. We then examine bitcoin’s correlation of returns relative to traditional asset classes, making the case for a strategic allocation. Finally, we assess the maturity of bitcoin in the marketplace and conclude with thoughts on its allocation in a well-diversified portfolio.