Solving the Pension Problem — Liability Matching & Bitcoin
Currently, there are trillions upon trillions of dollars in custody of Sovereign Wealth Funds and Pension Funds around the world. Typically speaking, these kinds of funds like to invest in assets that produce consistent, relatively low-risk, long-term cash flow, to allow them to match their future liabilities, i.e., their regular fixed payments to their clients. This is known as liability matching.
Many of the biggest funds invest in infrastructure projects like Toll Roads, where the fund builds the infrastructure and is then granted a concession to collect tolls for a particular period of time to pay back the initial investment, as well as a very generous ROI over a long period of time. When I say long time, I mean “between 20 and 99 years, but most have been around 30 to 50 years”.
Obviously, Bitcoin doesn’t exactly match a pension fund’s definition of low-risk, consistent, long-term cash flow. Firstly, Bitcoin is most definitely not low risk. Secondly, and most importantly, Bitcoin is not a cash flow generating asset. So, where do Pension funds come into this consistent long-term cash flow exactly? The answer is Power Generation.
I’ve written at length on Bitcoin’s power consumption, and that it is only temporarily “bad for the environment” due to the nature of the world’s energy grid. As more money is pumped into renewables, Bitcoin will eventually be effectively emissionless, but obviously still require a lot of power. So, for better or worse, the oceans won’t be boiling and bubbly enough for giant hot-tub parties or warm winter swim sessions.
Bitcoin never sleeps — which is a power provider’s dream. When the Bitcoin ecosystem is ready to do so, you will see Bitcoin miners vertically integrate and build their own power plants, or, sign long-term exclusivity agreements with local power suppliers, where miners buy the entire plant’s capacity — 24/7, maximising plant profit.
So, what if the Pension Funds decided to allocate a decent chunk of their portfolio to renewable power plants, and sign multi-decade deals with Bitcoin mining firms? They would both be helping the world move over to renewable energy and a cleaner future, draw consistent cash flow from the Bitcoin mining economy, and add a further layer of legitimacy to the Bitcoin industry — a win win win.
Unfortunately for the Bitcoin moonboys — since no Bitcoin is actually bought/sold by Pension Funds in this scenario, there probably won’t be any price action as a direct result of investment in energy infrastructure to power the mines. That said, all it takes is a few funds to start the ball rolling and realise the wide array of financial benefits before different kinds of financial institutions take the Bitcoin plunge in their own respective ways.
You can check out my videos on the Cost & Sustainability of Bitcoin here:
And don’t forget to enter my 1 million Satoshi giveaway competition which will be drawn on November 30, 2018:
