Wednesday, February 10, 2021
Times have changed since I wrote “Bitcoin Rally is Just Beginning” in November 2017, prior to my 2018 run for Rhode Island State Treasurer.
“I believe that Bitcoin has real potential to make many ordinary people wealthy beyond belief. I further believe, the trigger that will set off the next vault upward in price is arriving soon in the form of access and leverage,” I wrote over three years ago. “The ability to leverage your Bitcoin investments and its many related offspring is quickly becoming a reality. An instrument like Exchange Traded funds, Notes, Futures, Options on Futures and options on ETF’s are all coming soon. Both the CBOE and CME intend to trade Bitcoin futures and options.”
Now in 2021 pension plans will need to answer question about dollar exposure. Jamie Dimon now is long Bitcoin and JP Morgan is committed to the business. Warren Buffett, I assume, is still skeptical. The trader in me is a bear and a short seller of bitcoin at $50,000, if short selling is still allowed in America. The action these days is in Bitcoin and Dogecoin and a bunch of other assets including Special Purpose Acquisition Companies (SPAC). Reddit stocks and short squeezes are in an enormous bubble.
Markets of all types are soaring and at all-time highs, yet somehow Rhode Island’s pension funds have not really Improved their funding ratios (fund assets/promises) over the last 10 years of a bull market and have troublingly gotten worse. Pensions for the State were 61% funded after reform in 2011-2 and now 10 years later are 55% funded. Raimondo had projected 80% funding by now and a return of COLAs. In Providence, the situation is even worse with pensions 22% funded, down from 34%.
The 64,000-Bitcoin Question
Now many believe we are on the verge of a bear trend. With pension funds in Rhode Island barely hanging on with bull market tailwinds, the 64,000-bitcoin question is:
“What happens if the current speculation and Bull market ends?”
What will municipal and state governments do? Can we keep our promises to retirees and taxpayers? Maybe, But I strongly doubt it and we should be very concerned about the rampant speculation across all markets. I hope Seth Magaziner does not succumb to his heavy wall Street connections and advice and decide that Rhode Island needs exposure to Bitcoin. He is undoubtedly being told that he needs to invest between 1% and 2% of the Pension assets in Bitcoin. That would represent between $100 million and $150 million in bitcoins. Seth will be under pressure to make this move. I believe it is ill advised and had I been Treasurer in 2018 I would now be reducing Rhode Island Bitcoin exposure dramatically as this appears overly speculative.
Magaziner follows his high-priced advisers and their high-priced management fees. We should expect him to “hire” bitcoin managers to establish Rhode Island exposure to crypto currency.
Michael Riley is the founder Coastal Management Group LLC, Chairman of the Narragansett Republican Town Committee, Treasurer of the Southeastern Legal Foundation, and a Board Member Rhode Island Center for Freedom and Prosperity