Bitcoin Is a Hedge Against U.S.-China Trade War: FalconX CEO

In brief

• Raghu Yarlagadda cited three reasons for the recent institutional interest in crypto: inflationary hedge, geopolitical risk and a 24/7, always-on trading desk.

• Tesla is an outlier both in terms of inflationary hedge and the sheer volume of investment.

• The price is more sustainable this time thanks to the quantity and quality of money coming into the space.

Bitcoins recent price rally and institutional interest in crypto are hot topics, and, with any luck, a virtuous circle.

Raghu Yarlagadda, CEO of FalconX, a California-based cryptocurrency trading platform targeted at institutional customers, sat down with the Decrypt Daily podcast to explain why institutional investors keep flocking to Bitcoin and whether that's really pumping its price.

Reasons Behind Institutional Interest

“The first and foremost reason is the inflationary hedge,” Yarlagadda told Decrypt. “As the world is printing more money, it is very clear that Bitcoin is emerging to be one of the inflationary hedges,” he said.

Yarlagadda told Decrypt that the second reason is less obvious—less publicly known—but all the last ten institutions that came to FalconX mentioned this: the geopolitical risk hedge. “With the new US administration coming in, there are a lot of people who say that the trade war between the US and China is going to aggravate just a little bit more.”

Bitcoin tends to do well from a price perspective whenever American-Chinese relations appear to sour, he explained.

In a recent recorded conversation with Morgan Beller, a general partner at venture capital firm NFX, Ethereum creator Vitalik Buterin also said that any conflict between China and the US is good for crypto, even though its an overall negative-sum for humanity.

The third reason for the institutional interest is what Yarlagadda calls “the mechanics of 24/7.” Institutions appreciate that they have access to Bitcoin all the time, “irrespective of the country, irrespective the boundaries.” Stock markets arent open on weekends, after all.

FalconX is a cryptocurrency brokerage and digital asset trading platform that primarily services institutional investors. Last year, as Decrypt reported, it received investment (undisclosed size) from American Express Ventures, the venture capital arm of the financial services giant. It has seen steady growth since then as institutional investors flock to Bitcoin.

Tesla the outlier

Yarlagadda explained that Tesla, a prime example of a mainstream company that invested in Bitcoin, went against the grain when it made a huge bet against inflationary fiat currencies on its balance sheet. Earlier this month, the car company run by Elon Musk disclosed that it had converted $1.5 billion of its balance sheet into Bitcoin.

“Most of the companies that we see are trying to get the inflationary hedge on their balance sheet, it's usually 1-2%. And that is remarkably similar across the companies that we've seen.”

But Tesla is at 8%, and that makes the company an outlier—in addition to the sheer size of its investment worth $1.5 billion.

Are institutions behind the price surge？

Is the recent price surge due to institutional interest？

“What we've seen in the market through our own desk and analytics that we capture on chain, I don't think there is a major corporation buy, one way or the other, in the last five days.”

The buy/sell ratios across the FalconX platform suggest that the recent $50k price push is mostly retail-driven, he explained.

Yarlagadda believes the Bitcoin price is more sustainable now than it was in 2017 thanks to the “the number and quality of institutions that are coming in.”

“The quality of money that's coming in is just incredible. [In the] last six to eight months, we have boarded 100 institutions completely organically—I don't [even] have a sales team.”