In his investor letter, Ross L. Stevens, CEO of Stone Ridge Asset Management, provided a profound analysis of Bitcoin, emphasizing its role in the firm’s financial strategy.

Stone Ridge Asset Management is a financial services firm known for its innovative approach to investment management, particularly in areas like alternative risk strategies, including digital assets like cryptocurrencies.

Bitcoin vs. Fiat: A Risk Assessment

Stevens challenges the conventional view of Bitcoin as a high-risk asset compared to fiat currencies. By contrasting the performance of Bitcoin with traditional fiat savings, particularly long-term US Treasury bonds, he demonstrates Bitcoin’s superior stability and reliability as a store of value. This perspective is a significant departure from the mainstream financial industry’s often cautious stance on cryptocurrencies.

Bitcoin as a Treasury Reserve Asset

Since 2017, Stone Ridge has adopted Bitcoin as a key component of its treasury reserve strategy. This decision reflects Stevens’ belief in Bitcoin’s potential to hedge against the risks associated with fiat currencies. The firm’s strategy of being net short on USD and saving in Bitcoin has contributed to its robust growth and profitability, exemplified by a 25% annualized ROE over the past five years.

He wrote:

Over the last one, three, five, and ten years, long-term fiat savings (20Y+ US Treasuries Index) has cumulatively returned 2%, -33%, -8 %, and 24%, respectively. Over the same time periods, long-term non-fiat savings, bitcoin, has cumulatively returned 156%, 46%, 1,052%, and 5569%, respectively. Which one is risky? Which one is ‘backed by air’? Which one should we ‘close it down’? Which is the one ‘we don’t need’?

Since 2017, bitcoin has been Stone Ridge’s treasury reserve asset because of my extreme aversion to risk. We run net short USD – which is fancy way of saying we net borrow fiat – to pay bills and make investments. We save in bitcoin.

The Security and Value Proposition of Bitcoin

Stevens addresses common criticisms of Bitcoin’s intrinsic value by highlighting the immense amount of stored energy in its blockchain, which underpins its security and value. This energy-intensive Proof of Work process, according to Stevens, ensures that Bitcoin’s security and value are far from being ‘backed by air.’

He wrote:

Bitcoin’s security is enforced by far more power than most entire countries produce. That’s not a matter of belief. Buying bitcoin is buying what bitcoin is backed by: an almost incomprehensibly vast amount of stored energy in its blockchain, more than a decade of 24/7, decentralized, Proof of Belief Work. Not air.

Market Adoption and Perception of Bitcoin

Despite skepticism from some government and financial leaders, Stevens notes Bitcoin’s substantial market value and increasing adoption. He views Bitcoin’s growing acceptance as a legitimate financial asset as a testament to its potential and a reflection of the free market’s recognition of its value.

Bitcoin’s Principles and Stone Ridge’s Commitment

Stevens expresses a strong belief in the principles underlying Bitcoin, such as fairness, justice, and resistance to censorship. He sees Bitcoin as an embodiment of optimism and a tool for preserving individual liberty. Stone Ridge’s commitment to Bitcoin is not just as an investment but as a fundamental part of its treasury management and corporate strategy.

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