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scarcity value will drive uh or will increase because of the supply demand imbalance with institutional investors really having very little involvement yet. Um and so we think this is just the beginning for individuals and institutions. Um you know it's it's a buy and hold asset because it is in such early stages and really think about that.
uh institutions probably have trillions commit to commit to digital assets broadly and Bitcoin only has a 100 billion more that will ever be minted. Kathy Wood begins her commentary by identifying three primary drivers behind Bitcoin's long-term value proposition and why it's starting to command attention among younger investors and major institutions alike.
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Thanks and enjoy the video. The key drivers there are three. Um the the first is it is becoming a substitute for gold in terms of a store of value. Um younger people prefer uh bitcoin than than gold. And I think they do believe that it is basically the same thing. Both of their prices are determined by scarcity value.
And in the case of uh Bitcoin, uh right now we're moving towards 20 million Bitcoin having been uh minted since uh the beginning of its existence in 2009. Uh the um number that it will be in existence ever is 21 million. So only 1 million more to go, which is about a hundred billion dollar. Um so scarcity value is becoming more important especially since uh for the first time uh bit bitcoin supply growth dropped below the long-term supply growth of gold which is 1%.
uh with the latest having uh last year uh the the the supply growth now is uh roughly 0.9%. And that will continue to go down with time uh which is unlike gold. If the gold price keeps going up that supply growth uh will will um uh pick up in its pace. Uh that cannot happen with Bitcoin. Um the second reason is a institutional investment.
Now uh bitcoin is it it represents three things. It's a technology. So the blockchain underlying bitcoin uh which is a layer that the internet missed out on in the early 90s because developers had no idea financial services would take place on the internet. So now that is now being put in place. It is a store of value as I just described the reason why most young people are attracted to it and um and it is a new asset class.
It does not behave like other asset classes. Sometimes it behaves like the NASDAQ, sometimes it doesn't. Sometimes during the regional bank crisis in the US in early 23, it bmed because everybody understood no counterparty risk here like the banks had back then. So it doesn't behave like any other asset and that means that institutions and asset allocators have a duty to uh assess whether it deserves a role in the portfolios or their asset allocation and um if if they say no they better have some very good reasons.
So, uh, the hundred billion dollars that I mentioned, um, institutions have to either take up those newly minted Bitcoin and that's going to happen over years and years or they'll have to pay up to get holders to sell it. Uh so again scarcity value will drive uh or will increase because of the supply demand imbalance with institutional investors really having very little involvement yet.
Um and so we think this is just the beginning. If you look at Bitcoin over time, uh the volatility was incredible in the early days, 200 300%. Uh it has been coming down consistently 40 50% now. And um if you believe in the scarcity value of Bitcoin, um just like gold, gold has had ups and downs. uh you're going to be willing to put up with the volatility, but it's the sort of um asset where you okay, you put it in your portfolios and then just leave it there.
I mean, there of course there are going to be there's going to be trading around it and that's great for the exchanges. You know, we're involved with Coinbase. It's great great for exchanges. Uh but for individuals and institutions um you know it's it's a buy and hold asset because it is in such early stages and really think about that uh institutions probably have trillions commit to commit to digital assets broadly and Bitcoin only has a 100red billion more that will ever be minted.
Personally um I have I have bought Bitcoin outright. Um, many of our clients wouldn't let us uh uh put it in in the portfolios. So, others are playing it through Coinbase. Uh, Robin Hood is developing a crypto strategy as well. SoFi is developing a crypto strategy. E Toro here in Europe has a c just went public.
Uh, and we added it to our portfolios. It has a a crypto strategy. Uh so um many are forced to go in directly just because their platforms I'm thinking about advisors now. I realize you're DTC. Um so your your clients can can buy it outright. Um the last thing that I'd like to add is there is a way to um kind of straddle the two.
Um and that of course is ETFs. So, spot Bitcoin ETFs were approved. The SEC approved them last year. ARKB was one of them. That's ours. Uh, and so that is sort of a a way to leg pure play Bitcoin exposure instead of dealing with a wallet a wallet or a wallet provider. At the 2021 peak, ARC's portfolios were trading at a 275% premium to the S&P 500 using enterprise value to adjusted Ebida, adjusted for SBC and R&D.
Today, they're trading at only a 10 to 15% premium, well below ARK's long-term average of 90%. In Cathy's view, the valuation reset is complete. Her team believes that with strong productivity growth, lower inflation, and favorable monetary conditions, disruptive innovation is poised to lead the next bull market.
Our strategy is volatile, more volatile than the market. Uh, and that's because these are long duration uh, strategies. So, they do get hit harder during turmoil. But the ironic thing is when consumers and businesses are afraid or concerned, worried about the future, they are more willing to change the way they're doing things.
So better, cheaper, faster, more productive, more efficient, uh more creative products and services. That's what we do. So what you usually see towards the end of a correction or a bare market is our stocks tend to start outperforming uh uh before the broader market uh does. Uh so uh and that has happened this time in this time as well.
We went through tariff turmoil. Uh we went down more than the market and now we're up more than the market. And the question now is, will this be sustained? Um, if we're right that we're moving from a rolling recession to a strong recovery with surprisingly low inflation because it's going to be productivitydriven.
Um I think uh I think we're in for very good days for for innovation all kinds of equities of course but you know our stocks over the last four years have faced three major headwinds that are going to turn into tailwinds now. Would you like me to go through them? Yeah sure please. Sure. Sure. So the three headwinds have been first the interest rate shock in 22.
Now, just because interest rates go up or stay up, it usually doesn't bother our strategies. Uh, if you look at uh 2017 and 18, the last time Trump was in office, interest rates went up and we outperformed the market in both 17, which was an up market, and 18, which was a down market, and our flagship strategy was up.
Uh, it was the shock of the interest rate moves. We're not going through another one of those. That headwind is done. The second headwind I mentioned earlier, which is which was the concentration towards a very few stocks and therefore what I describe as an unhealthy not broad-based uh uh bull market.
Um that we think is changing. We started to see it upon the election of uh President Trump. uh then we had tariff turmoil and and we had the backtracking uh and now we're seeing it again. So and then the third headwind is uh a valuation headwind in at the peak in uh in 2021 our um our portfolios sold at a 275% premium to the S&P when measured using enterprise value to adjusted IBIDA adjusted for SBC and R&D and we've worked with S&P to get that metric.
So 275% in February of 21. Today we're somewhere in the 10 to 15% range relative to the S&P 500. On average through ARC's existence since 2014, uh we have sold at a 90% premium. So we are well below average, well below precoid. Uh so that headwind is gone as well. As we've heard from Kathy Wood, the case for Bitcoin is stronger than ever.
It's not just a speculative asset. It's a technological breakthrough, a monetary revolution, and a long-term store of value unlike anything we've seen before. With institutional capital waiting on the sidelines, the approval of spot ETFs, and supply continuing to shrink, Bitcoin is positioning itself as a core component of the future financial system. Please like and subscribe.
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