That is if one looks at what Berkshire Hathaway is doing with its banking positions. Warren Buffett – the “Oracle of Omaha” – is dumping his bank stocks, dialling back on his gold and buying big pharma.
Berkshire has slashed its stake in several big banks in the USA during the three months to the end of September. These include JPMorgan Chase, Wells Fargo, PNC Financial and M&T Bank. Not a ringing endorsement of the financial sector that has served Buffett well over the years. But there may be more to projected bad debts and poor margins that is scaring off Buffett. And the answer may rest in what banks are saying and doing.
There is big change afoot in the USA at present. Notwithstanding who will occupy the White House or the Senate, America’s banks are getting nervous. Potential insolvencies, a residential housing bubble akin to 2008 and a feeling that “younger” customers want more is causing rumblings in the boardrooms. But, it is more than just a feeling. Imagine being the banker who had to advise the bank’s board that Michael Saylor of Microstrategy was withdrawing $425 million (£321m) from its coffers to stick it into Bitcoin. From that point, Bitcoin became an agenda item – I would bet – at every meeting moving forward.
It reminds me of when I bring up the subject of cryptocurrency with financial advisors and those with pedigree in banking. I am duly dismissed and sent to the back of the class for bad behaviour. Bitcoin and alt coins and crypto are the devil to these guys and gals because they don’t fully understand it, have ignored and cannot sell it to their customers. I’ll make a bold prediction here. Watch this space and your own financial advisors when they legally can advise on the likes of Bitcoin and get a commission for doing so. Your email inbox will be full of marketing ads bigging up crypto. It happened to me this week as PayPal became a crypto provider.
But just to add some full flavour to this discussion on how banks are fearing and dealing with change and cryptocurrency, up pops a big USA bank with a headline-grabbing prediction. In a recent Bitcoin technical analysis reportedly prepared by CitiFX for its institutional clients, the price of Bitcoin was pegged at a potential $318,000 some time in December 2021. To put this into perspective, only a month ago Bitcoin was trading at around $11,000. This week it hit $16,700. Thomas Fitzpatrick, a managing director at CitiBank, further commented that “Bitcoin is the new gold”.
Of course, many a fellow has fallen foul of a good spreadsheet and forecast in the past. Things can change so quickly in markets, and events across the globe can stop or accelerate the logic in a spreadsheet. But Citibank is not the only big institution that is looking closely at where cryptocurrency fits in the new economic model of the 21st century. This current pandemic is an example of just that as central bank borrowing has rocketed, causing the Bitcoin community to point their fingers and say “I told you so”. For this cohort of the cryptocurrency community, the whole fiat currency experiment is coming to an end. Or at least a new Bretton Woods and currency “reset”.
So, what should banks do as their “relevancy” deteriorates with millennials, and new age currencies like Bitcoin became popular and, dare I say, “trusted”? The answer is easy. Join the party. And that is exactly what I predict they will do and fast. Bitcoin only has a limited supply of 21 million “coins”. This in effect, makes it scarce. And the current gradual rise in its price is nothing to what could happen if the big institutional investors and financial titans get ahead and start buying.
With central banks eyeing up their own digital currencies, the retail and investment banks or “middle men” need to ensure they remain relevant and indeed profitable. That is why PayPal is now in the cryptocurrency game. That is why Fidelity in the USA is offering Bitcoin products.
That is why Grayscale Investments has hoovered up about 2 per cent of the global Bitcoin supply. The demand is there and at 2 per cent fees, it’s a revenue-generator no brainer. Warren Buffett is positioning his chess pieces of the next year. So far that “sage” has ignored Bitcoin. That may not last long.
Jim Duffy MBE, Create Special