Five reasons why Singapore’s Temasek should buy Bitcoin

In this piece we make a case for a Bitcoin investment by Temasek, Singapore‘s state-owned investment company with over S$300 billion assets under management. Living in Singapore for over five years, we held numerous conversations with average citizens, business persons and government officials that helped us develop a fairly profound understanding of the city-state’s historical development and major challenges moving forward. At the same time, we are longstanding advocates of Bitcoin which in our view presents a unique opportunity to strengthen individual freedom, financial sovereignty and wealth preservation. Our mission is to drive the adoption of the Bitcoin standard in Asia and we believe that Singapore is predestined to be a frontrunner of this revolutionary shift in monetary history. Temasek can make investment decisions independent of government interference but plays a key role in contributing to Singapore’s budget and its assets form part of the national reserves. As such, the company represents an excellent vehicle for Singapore to get exposure to the soundest form of money ever invented thereby helping safeguard the country’s future financial sovereignty.

What is Temasek?

After Singapore’s independence in 1965 and the subsequent withdrawal of the British Armed Forces, the city-state’s government converted several military facilities left behind by the former colonial power into civilian businesses and acquired a variety of companies in areas like manufacturing, shipbuilding, aviation and telecommunications. With a mix of realism and humility unrivalled among most politicians worldwide, Singapore’s government decided to separate governance from business and that it should not run the enterprises that it owned. In 1972, Singapore’s first Finance Minister and then Defence Minister Dr. Goh Keng Swee said that “one of the tragic illusions that many countries of the Third World entertain is the notion that politicians and civil servants can successfully perform entrepreneurial functions. It is curious that, in the face of overwhelming evidence to the contrary, the belief persists.”

As a result of this decision, Temasek was founded in 1974 as a commercial investment company to hold and professionally manage the assets previously controlled by the Singapore government while the latter could focus on its core role of policymaking. In the 1980s, Temasek started to work on an active investment strategy, arranging IPOs for some of its portfolio companies with Singapore Airlines being one of the most prominent examples. In the 1990s, in an attempt to foster free market principles and strengthen Singapore’s competitiveness, the government began to privatise several companies. One of them was Singapore Telecommunications Limited (Singtel) which handed out 11% of its shares to the public while Temasek kept the remainder. Overnight, many Singaporeans became shareholders participating in the economic success of their country’s bluechip companies. In the 2000s, Temasek stepped beyond Singapore’s shores and started investing in numerous companies globally with a firm focus on emerging Asian markets.

Temasek’s portfolio

Today, Temasek manages a global portfolio of S$306 billion net value as of 31 March 2020. Two thirds of Temasek’s portfolio exposure is in Asia, with China accounting for 29% and Singapore 24%. North American and European equities make up 17% and 10% respectively.

In terms of sector exposure, financial services account for 23% of Temasek’s assets, followed by telecommunications, media & technology (21%), consumer & real estate (17%), transportation & industrials (16%), life sciences & agribusiness (8%), energy & resources (2%), multi-sector funds & others (13%). The majority of assets are denominated in Singapore dollars (57%) and a smaller percentage (26%) in US dollars.

As of March 2020, Temasek’s net portfolio value increased by S$120 billion over the last ten years. The total shareholder return (TSR) was 5% on a compounded and annualised basis over the same ten-year period. The twenty-year TSR was 6% while the long-term forty-year TSR was 14%. Over the last decade, Temasek underperformed the annualised returns of the MSCI World Index (9%), the MSCI China Index (8.75%) and the S&P 500 (13.6%). Looking at the last five years, Temasek’s 3% performance beat Singapore’s core inflation rate (2%), however the TSR did not surpass the average annual increase of Singapore’s monetary supply which was slightly higher at 5.3% within this timeframe.

Not a typical sovereign wealth fund

Contrary to commonly held misconceptions, Temasek is not a typical sovereign wealth fund. The Government of Singapore Investment Corporation (GIC) is responsible for managing Singapore’s government surpluses accumulated since the independence while the Monetary Authority of Singapore (MAS) - Singapore’s central bank - handles the country’s foreign reserves. Temasek is a private company that owns its assets outright, pays taxes like any other commercial company and distributes annual dividends that supplement the government’s budget. The dividends are used to finance a range of social initiatives in fields like education, medical care and welfare. The combined contributions from MAS, GIC and Temasek make up 20% of the government’s budget in 2020. Despite the fact that its sole shareholder is the Ministry of Finance, the government is officially not involved in Temasek’s investment strategy or corporate decisions.

Temasek describes itself as forward looking investor who strives to generate sustainable returns beyond the present generation. To achieve this, Temasek claims to “reinvent and challenge ourselves to stay relevant in a rapidly changing world. We do things with tomorrow in mind”. Related to this, Temasek places a strong focus on climate change and promotes Environmental, Social and Governance (ESG) efforts within its portfolio. As part of its own ESG initiatives, Temasek achieved carbon neutrality by 2020 and aims to deliver net zero carbon emissions for its portfolio by 2050.

Drawbacks of fiat currency

Similarly to the founding of Temasek in 1974, Bitcoin’s raison d’être was to separate money and state as, by spirit of Dr. Goh Keng Swee, there is overwhelming evidence to the contrary that governments can successfully perform the function of managing money production, issuance and distribution. And while that is particularly true for the Third World where hyperinflation is a common and regularly occurring phenomenon, the First World is not exempt from currency debasement as a result of unsound monetary policies. Since President Nixon took the US off the (admittedly defective) gold standard in 1971, central banks have the ability to produce unlimited amounts of fiat money. Whether the expansion of the money supply comes with good or bad intentions is not really important. What matters is that the creation of more currency units is an undeniable reality for every country that has been operating under the fiat standard - which today encompasses every single nation in the world. In order to prevent a collapse of the global financial markets and finance various stimulus programs after the outbreak of the Covid-19 pandemic, central banks worldwide ramped up the printing press and drastically increased the money supply. It has became a widely reported fact that around one quarter of all US dollars created since the birth of the nation were created in 2020. But also most other nations saw an expansion of their M2 money supply of more than 10%.

With a central authority in charge of the monetary rules of a country, fiat money is inherently susceptible to regular changes of these rules. And over the last few decades, the rules were constantly changed in favour of looser monetary policies driving especially asset prices up and eroding the purchasing power of anyone who voluntarily or involuntarily decided to hold their savings in form of a government-issued currency. What’s more, fiat money incentivise states, corporations and individuals to take on debt as evidenced by the steep growth of global debt over the last years. One of the biggest risks associated with high debt levels is that it often leads to a vicious cycle of continuous borrowing and adding on more debt which is hampering growth and devaluating currencies. To help countries service their debts and make borrowing cheaper, central banks reduced interest rates close to zero, in some countries below zero. This in turn punishes savers who keep their money on low- or negative-yielding bank accounts on top of the inflation effects. Given the enormous amounts of debt public and private sectors have accumulated, there is little reason to believe that monetary policies and their implications will significantly change anytime soon. The gradual erosion of fiat money’s purchasing power is set to continue.

Bitcoin: Rules without rulers

Bitcoin has a fundamentally different governance model than the central banking controlled fiat monetary system. In the Bitcoin network there are no central authorities that manage monetary policies. Instead, Bitcoin is a fully decentralised system of globally distributed computer nodes that operates without rulers but maintains an ironclad set of monetary rules. Arguably one of the most important rules is that there will ever be only 21 million Bitcoins. The absolute scarcity of Bitcoin, enforced by tens of thousands of independent network nodes, makes Bitcoin a unique asset class. Even gold, which has been mankind’s preferred store of value for thousands of years and which was the direct or indirect peg for government currencies until 1971, has an annual supply growth of 1-2% per year. Bitcoin’s annual supply growth stands currently at 1% but asymptotically approaches zero over time as all 21 million Bitcoins will have been issued approximately by the year 2140. Bitcoins can only be created in a process called mining every 10 minutes whereas this 10-minute interval is automatically calibrated and enforced by the network regardless of Bitcoin’s value and regardless of how many powerful computers try to accelerate or slow down the production of new Bitcoins. Hence, Bitcoin is the first asset in the world whose supply is entirely unaffected by new demand. That makes Bitcoin the hardest money that ever existed and the ultimate store of value for the digital age. Thanks to its other features such as portability, divisibility, verifiability and unconfiscatability, Bitcoin is a superior tool of wealth preservation with better monetary properties than anything preceding it. The invention of digital scarcity was a singular event and the more Bitcoin grows in terms of network security, market valuation, user base and its surrounding infrastructure, the stronger the network effects become, thereby amplifying its worldwide adoption. For these reasons, a rapidly increasing number of institutional investors started to acquire Bitcoin - be it as portfolio diversifier, inflation hedge or treasury reserve asset on the balance sheet.

As of March 2021, more than 1.3 million Bitcoins or US$74 billion are held in corporate treasuries. The most prominent companies that bought Bitcoin are Microstrategy, Tesla and Square. Several investment funds, hedge-funds, insurances, high-net-worth individuals and banks have either disclosed positions or support the adoption of Bitcoin with their products and services. Bitcoin has transformed from a niche internet collectible into a mainstream asset class that no professional money manager can afford to ignore any longer.

Being one of the largest investment companies in the world whose mission it is to build generational wealth, we believe that there are compelling reasons why Temasek should add a Bitcoin position to its portfolio. In the following, we will present and explain five reasons why Temasek should buy Bitcoin.

1) Bitcoin boosts Temasek’s shareholder return

Bitcoin is by far the best performing asset over the last decade, returning almost 5 million %. The annual compounded growth rate of Bitcoin is almost 200%, a number unheard of in investment history. Even the performance of Tesla, one of the best stock investments in the last few years, is dwarfed by Bitcoin’s average return. Moreover, Bitcoin crushes the performance of its closest competitor, gold, as well the S&P 500 over any multi-year period since its inception.

If we do a thought experiment and assume Temasek had already added Bitcoin (BTC) to its portfolio, we get interesting results in terms of the impact on their total shareholder returns. In the first scenario, Temasek made an allocation of 1% of their net portfolio value to Bitcoin in 2019, at a purchase price of S$10,000. That would correspond to a deployment of S$3 billion and a position of 300,000 BTC. As the average monthly price of Bitcoin one year later was S$40,000, Temasek’s portfolio value would have been S$ 9 billion higher and the annual return would have been +1% instead of -2% for 2020. In the second scenario, we assume Temasek made an even earlier Bitcoin investment, during 2015, before Bitcoin and cryptocurrencies attracted the attention of the mainstream. In this scenario, Temasek invested S$266 million (0.001% portfolio value) into Bitcoin at a price of S$350 which would have allowed them to acquire 760,000 BTC. With such a large amount of Bitcoin in their portfolio and given Bitcoin’s exponential rise since, Temasek would have achieved a compounded annual growth of 5% (vs. 3% actual) between 2015 and 2020.

Naturally, past performance is never an indicator of future results and there is no guarantee that Bitcoin will continue to deliver 200% returns per year over the next decade. But more and more retail and institutional investors perceive Bitcoin as gold 2.0, the ultimate store of value for the digital age with a hard-coded and unchangeable monetary policy that allows users to store their capital outside of the legacy system where it cannot be seized, censored or diluted. In a world of infinite fiat money, zero to negative interest rates and record-high equity valuations, Bitcoin offers an attractive alternative with an asymmetric return profile: Should the network fail and Bitcoin go to zero, investors would lose all of their capital. Should Bitcoin reach parity with the market capitalisation of gold, one Bitcoin would be worth around US$580,000 - a more than 10x return from current price levels. Should Bitcoin become the world’s dominant store of value absorbing capital from real estate, stocks, bonds, gold and other assets, one Bitcoin would be worth several million dollars. Despite it currently being a one trillion dollar asset, Bitcoin only accounts for a fraction of other asset classes typically used by investors to preserve their wealth, whether that’s precious metals like gold, equity markets, real estate or government bonds.

2) Temasek is already exposed to companies that adopt Bitcoin

A Bitcoin allocation would not be a contrarian step given the fact that several firms Temasek invested in have already adopted or announced the adoption of Bitcoin and Bitcoin-related products. For example, Temasek is the largest shareholder of the Development Bank of Singapore (DBS), holding 29% of DBS’ equity. In December 2020, DBS announced that it will set up a digital currency exchange, allowing investors to convert fiat currency into Bitcoin and three other cryptocurrencies. A digital exchange run by a bank is the first of its kind in Asia and was approved by the Monetary Authority of Singapore.

Temasek also holds a position in PayPal (< 1%) which made the headlines last year when it announced that US accountholders can buy, hold and sell Bitcoin and other cryptocurrencies from the start of 2021. The service will be gradually rolled out to additional international markets and crypto offerings will be made available through its payment app Venmo, too. Both Visa and Mastercard, also Temasek investments, plan to adopt Bitcoin and cryptocurrencies on their networks. While Visa intends to help banks roll out bitcoin trading services with a crypto software program, Mastercard was more vague in their announcement saying they would support selected cryptocurrencies on their network later this year.

While PayPal, Visa and Mastercard are undisputed heavyweights in the traditional financial services sector, it should not be forgotten that Bitcoin’s market cap as per March 2021 is higher than the combined value of these three companies, signaling a disruptive shift towards a future financial system with digital hard money at its core.

What’s also noteworthy is Temasek’s indirect investment in a cryptocurrency exchange. In 2018, Vertex Ventures, the venture capital arm of Temasek, made an investment of undisclosed value in Binance which is the largest cryptocurrency exchange worldwide with an average daily trading volume of US$ 3.6 billion.

3) Bitcoin supports Temasek’s ESG efforts

One of the most persistent narratives about Bitcoin, often propagated by ill-informed critics of all kinds, is the computer network’s alleged waste of energy and devastating impact on the environment. While it is true that Bitcoin consumes enormous amounts of energy - based on latest estimates as much as a mid-sized country like Norway - it is rarely discussed in mainstream media that Bitcoin in fact creates a global competition for low-cost electricity that in the long run will drive investments in renewable energy generation.

The consumption of electricity in Bitcoin is a result of the billions and trillions of computations miners have to perform to secure the network and ensure there is one single and truthful version of Bitcoin’s transaction ledger. In return for this work, miners are rewarded with new Bitcoins. Inevitable real-world cost to the consumption of energy incentivise miners to act honestly and commit valid transactions to the network. The other nodes would easily find out if a miner violates Bitcoin’s protocol rules, leaving them with high cost and no reward behind. There is real cost to the production of Bitcoins - like there is real cost (and real energy expenditure) to the production of gold whereas there is no real cost to the production of fiat money. That’s why bitcoin and gold are hard money, whereas fiat is cheap and easy money which can be created in infinite amounts with the stroke of a button. The higher the computational power (also known as hash rate) of the Bitcoin network, the more energy would be required to launch a double-spend attack (a hypothetical situation where the same coins would be spent twice, the only way to “counterfeit” Bitcoins). Therefore, a Bitcoin treasure worth more than US$1 trillion is essentially protected by an impenetrable digital fortress whose walls of energy an attacker would have to overcome if they wanted to steal or double-spend any coins. Energy consumption in Bitcoin is a feature, not a bug. And it is not wasted, it is used for an incredibly important purpose: to secure an unconfiscatable, censorship-resistant money with a fixed supply that allows people all over the world to preserve and grow their wealth since more than ten years. It can certainly be argued that other uses of energy, be it video-gaming, Christmas lights or casinos fulfil less important purposes. But energy use is the result of a free market with free individuals who who have decided that the use of energy for a certain technology is worth it. And currently millions of people around the world decide every single day that the use of energy for Bitcoin is worth it, as from their perspective it represents a better technology for money than gold or fiat currencies.

Aside from the discussion whether Bitcoin’s energy use is morally justified or not, another aspect related to the nature of Bitcoin mining is much more important: Bitcoin mining is a free market that anyone with access to electricity and an internet connection can enter. The specialised computers required to perform the mining process can be relatively quickly installed and dismantled anywhere in the world. Bitcoin mining is the only profitable use of energy in human history that does not need to be located close to human settlement to operate. Mining is a highly competitive business where the cost of electricity represents the most important variable. Miners with access to cheap electricity sources can increase their profit margin, using the gains to invest in more efficient equipment to further strengthen their edge. Miners who can’t use cheap electricity are unable to remain competitive - the free market puts inefficient energy consumption out of business.

The location-independence of producing Bitcoins and its necessity to consume cheap electricity make miners a predestined user of energy for which there is no demand as well as renewable energies in general. For example, large parts of the global computational power in the Bitcoin network is located in China, according to latest estimates 65%. Sichuan province is one of the epicenters for Bitcoin mining, accounting for 18% of the global hash rate. Over the last 20 years, Sichuan saw a massive overbuild of hydroelectric power. The installed hydro capacity in Sichuan is double what the local power grid can support creating a lot of excess energy. Consequently, many Bitcoin miners located around these hydropower plants where they use the otherwise wasted energy to perform computations and contribute to the security of the Bitcoin network.

In a similar example, one of the oil industry’s biggest challenges is to find a profitable use to capture the gases released as byproducts during oil extraction. Due to a lack of on-site demand or infrastructure to transport the energy where it might be needed, gases such as methane or LNG are usually released into the atmosphere where they contribute to pollution. That’s why there is an increasing interest by oil producers in mobile Bitcoin mining solutions that reduce the flare by up to 95% and convert the gas byproducts into a highly profitable asset, a digital rather than a fossil energy carrier that can be transported almost instantly at very low cost to any place in the world.

Until now, it is still an unsolved problem that renewable energies produce electricity according to their own schedule: Solar when the sun shines, wind when there is a breeze and hydro when it has been raining. Electricity grids can not support a surplus of energy and the world is far from using commercial viable storage solutions. Take Bitcoin mining into the equation and the world gets a profitable solution that captures the surpluses generated by renewable energies, whether that’s from large solar farms in the Sahara, powerful wind turbines along Australian coasts, or remote waterfalls in South America. Bitcoin mining drives investments in renewable energy projects which otherwise would not be feasible. The profits made from these projects help energy firms to finance the further advancement renewable energy technology. In light of these second and third order effects of mining, Bitcoin’s impact on the climate is a net positive in the long run.

4) Bitcoin as a geopolitical hedge

One of Singapore’s main geo-strategic challenges is to find the right balance in its economic and diplomatic relations with China and the US - two countries in the midst of an ongoing and unresolved conflict that centers around multiple issues. The importance of the two global powers is reflected in Temasek’s investment strategy as well considering that more than 50% of its portfolio consists of equities from the US and China. As observed in 2018/19, an escalation of the tensions can weigh on equity valuations affecting especially corporations that have large operations in both markets. Hedging against the number one geopolitical rivalry of the 21st century by investing in a state-independent neutral monetary network and store of value that is immune against currency manipulation, transaction censorship and asset confiscation will become an increasingly attractive strategy for professional wealth managers across the globe.

In 2018, the US administration under President Trump started to impose tariffs on a range of Chinese imports due to accusations of China’s unfair trade practices, including intellectual property theft and forced technology transfers which allegedly contribute to the US deficit with its most important trading partner. China perceives these measures as protectionist and attempt to stifle its economic growth. Consequently to the trade restrictions, the Chinese government retaliated multiple times with tariffs on American products coming into China. Despite reaching an agreement for a phase one trade deal in early 2020 and Donald Trump leaving office one year later, many experts believe the trade conflict to continue as President Biden has no immediate plans to remove the barriers imposed by his predecessor.

The dispute between the two largest economies worldwide is not only limited to trade. Fundamentally different views also exist when it comes to the status of Hong Kong, Taiwan, Myanmar, human rights, climate change, 5G technology and a number of other issues. There is a plausible case to make that in essence the tensions stem from a fear by the US political and military establishment viewing China’s growth as threat for American economic and geopolitical dominance. That dominance is also embodied by the US dollar being the world’s reserve currency whose role was formally established in 1944 at the Bretton Woods Conference. The US dollar is today the preferred medium of exchange in international trade, commodities like oil or copper are priced in dollars, and the majority of foreign reserves are held in dollars. But the US dollar’s standing as global reserve currency is not set in stone and will be called into question over the course of the 21st century. The widespread use of the dollar allows the US to impose economic and financial sanctions on other countries, for example by preventing them from receiving dollars for exports or owning US dollar denominated assets. In recent years, payment sanctions have been imposed on numerous government officials and institutions from Iran, Venezuela, North Korea, Russia and also China. That’s why there is a high probability that China will take necessary steps to develop the yuan into a rival to the US dollar challenging its role as global reserve currency. Especially the aforementioned US sanctioned countries will be interested in using nondollar currencies as alternative exchange medium for international trade and potential reserve assets. A yuan dominated financial system, however, is unlikely to be accepted by the US and other Western states who have fundamentally different economic, political and cultural values compared to China’s authoritarian-style socialist governance model.

While the global powers will struggle to agree on any national currency to be the global reserve currency of the future - which gives the issuing country significant economic and geopolitical advantages - Bitcoin as a globally accessible, nation-less monetary protocol that does not rely on any central authority offers a viable solution in an increasingly digitised world. Bitcoin’s power does not only lie in it being a supreme store of value compared with inherently inflationary fiat currencies. Bitcoin is also a supreme international payment network that allows final settlement of unlimited transaction values in an extremely secure, relatively fast and cheap manner. For instance, a US$1 billion transaction can be settled via the Bitcoin blockchain in less than 30 minutes at a fee of less than US$100 - 24/7, 365, without any nation state being able to stop or reverse it. Bitcoin doesn’t know any borders, it’s completely neutral and doesn’t give any country the privilege to issue the global reserve currency. It might therefore represent a compromise geopolitical rivals of the 21st century agree on to ensure global commerce will not be at the mercy of a single country’s monetary policy and international trade does not slow down if an agreement on a state-based reserve currency can no longer be reached. Although the use of an independent settlement system will face resistance by the incumbent economic powers, a non-zero probability of this scenario justifies an allocation of Bitcoin in any large institutional investor’s asset portfolio.

5) Bitcoin helps safeguard Singapore’s financial sovereignty

When Singapore separated from the Federation of Malaysia and officially gained independence 1965, it became a sovereign small city-state in an adverse environment marked by racial riots, power struggles and economic disintegration. Without hinterland to supply it with vital resources and hostile neighbour countries of much larger size, Singapore’s sovereignty was achieved against all odds and needs to be continually defended to this day. Tiny city-states like Singapore cannot survive in a world of larger and more powerful nations without any safeguards to protect their territorial integrity. For Singapore, military strength was a top priority next to building a competitive economy and ensuring social cohesion among its multi-ethnic citizens. At independence, Singapore was a third-world country with a per capita GDP similar to countries like Zimbabwe, Mexico and Ghana. Today, Singapore has one of the highest standards of living and is ranked as the most competitive country in the world.

For an inherently vulnerable country like Singapore, not only military defense but also financial defense capabilities matter. Therefore, it’s a strategic imperative of the city-state to keep large financial reserves in order to be protected against external shocks in an increasingly volatile geopolitical and economic environment. Singapore’s national reserves comprise the assets managed by MAS (US$360 billion), Temasek (US$220 billion) and GIC (> US$100 billion). Thoughthe exact size of GIC’s portfolio is not disclosed for national security reasons, a reasonable estimate puts Singapore’s overall reserves in a range of US$800 billion to over US$1 trillion. While many governments borrowed newly-created money from their central banks to finance Covid-19 support schemes, Singapore has drawn S$52 billion from its reserves to deal with the pandemic, highlighting the importance of having a financial buffer in exceptional circumstances. Aside from their role as rainy fund, the reserves also act as endowment for the government, providing a steady source of income of around S$17-18 billion annually - larger than any single tax. Singapore’s government spending is small at only 15% of GDP in 2019 (28% in 2020 due to Covid-19), but tax revenues are even smaller at 13%, meaning that Singapore runs a structural deficit on its primary fiscal balance. That’s why the returns from the assets invested by MAS, GIC and Temasek are important in the present and even more so in the future as Singapore’s ageing population leads to higher public expenditures, especially for healthcare, as well as potentially lower tax revenues.

As outlined, Temasek’s portfolio is mainly composed of equities from China, Singapore and the US, returning 6% annually over the last twenty years. GIC takes a more cautious investment stance, holding mainly bonds & cash (44%) as well as equities from developed (15%) and developing markets (15%). GIC’s twenty-year return is 4.6% per year on a nominal basis. The official foreign reserves managed by the MAS include predominantly safe and liquid assets like government securities and cash in form of foreign currencies with the US dollar representing the bulk. Gold accounts only for a small portion of the official foreign reserves (US$211 million). The large size and liquidity of MAS’ reserves are intended to act as buffer against a sudden capital outflow from Singapore which could undermine confidence in the national currency and as a signal that MAS has the necessary means to defend the Singapore Dollar against speculative attacks.

Singapore’s national reserves resemble a traditional investment portfolio that benefits from financial uptrends through equity returns while minimising the risk of financial downtrends through claims on sovereign debt. For a long time, equities and bonds were complementary assets with a low correlation. We argue that this dynamic is likely not to hold true in future. The unsustainable amount of global debt - currently 3.6 times the value of global GDP - implies a significant risk that nation states and corporations will default on their obligations. Bonds, equities and the currency of the defaulting state will dramatically lose in value. To prevent this scenario from happening, central banks are forced to keep printing more money to allow for the existing debt to be replaced with new debt. Also in that case substantial dangers exist that fiat currencies will be debased, making it increasingly difficult for investors to maintain their purchasing power.

The underlying problem of being exposed to traditional assets such as bonds, stocks or other “paper investments” is that they are associated with varying degrees of counterparty risk which can simply be described as the likelihood that a party involved in a financial contract might not be able to meet their obligations. Having ownership in a company via shares will not have real value in certain scenarios, bonds can become worthless if the debtor defaults and fiat currencies can lose their value if people lose faith in them as many episodes of hyperinflation demonstrated. For individuals, corporations or nation states to truly obtain financial sovereignty and to not be dependent on other parties’ actions, a solution needs to be found to properly account for the counterparty risks linked to the assets they are holding.

Historically, physical gold served best as hedge against inflation and financial instability due to the fact that it’s an asset without counterparty risk. Even today, all major central banks are holding physical gold as insurance against a debasement of their own fiat currency or protection against other sorts of economic crises. As we are moving into the digital age, Bitcoin will compete and eventually disrupt gold as the worldwide dominant bearer asset that allows its owner to have unconditional control over it. Bitcoin does not rely on any single nation, it has no cultural or ethnical affinity. Bitcoin is geopolitically neutral and open to everyone. The value of Bitcoin reflects the amount of wealth stored in it, without debt - a pure bearer asset. Having an allocation in Bitcoin is in fact not only a way to minimise counterparty risks, but also an investment in a new paradigm that will make these risks obsolete. As more value is allocated to Bitcoin and more trades and financial tools are built on top of it, Bitcoin is quickly evolving into the world’s dominant monetary network and store of value. While Singapore is a small country with limited territory in the physical world, it is still early enough to secure a far larger territory than most nations will ever have in the digital world.