In recent months, billionaires have been hoarding Bitcoin (BTC). Following Paul Tudor Jones, hedge fund manager Stanley Druckenmiller became the latest billionaire to publicly disclose his Bitcoin investment.
Bitcoin’s performance since 2015 Source: TradingView.com
Bitcoin is becoming more and more attractive to high-net-worth investors due to four main reasons: portfolio diversification, inflation hedging tools, gold substitutes, and huge risk-return ratios.
Investors increasingly see Bitcoin as “Gold 2.0”
Gold is an important store of value and a safe-haven asset for institutional investors. It can hedge against inflation and potential market downside risks.
Investors see gold more as a means of insurance to protect investment portfolios from market adjustments and macroeconomic uncertainties. Therefore, safe-haven assets usually do not have huge returns in the short to medium term.
Bitcoin is likely to achieve both goals at the same time because it is evolving into a safe haven asset with huge growth potential.
It is estimated that the market value of gold is about 9 trillion US dollars. In contrast, Bitcoin has a market value of $285 billion, and the market value of the two assets differs greatly.
In an interview with CNBC on November 9, Druckenmiller emphasized that Bitcoin’s reputation as a store of value will only increase over time. He said:
“Bitcoin, as a store of value asset class, is very attractive to millennials and new West Coast investors, and they hold a lot. As an asset with a history of nearly 13 years, Bitcoin The position is getting stronger and stronger.”
Huge risk-reward ratio
In the interview, Druckenmiller pointed out that the Bitcoin he owns is “many, many times that of gold”. But the billionaire investor emphasized that if the price of gold rises, Bitcoin will also rise sharply, and “may perform better than gold.”
The investor said that Bitcoin is “sparser” and “less liquid” compared to gold. Therefore, even if Bitcoin accounts for less than gold in the investment portfolio, Bitcoin still has greater upside potential.
Bitcoin will also halve block rewards every four years. Since the fixed supply of bitcoin is 21 million, the number of bitcoins mined every day will be reduced by 50% after each halving.
If the supply of Bitcoin declines but demand increases, in the long run, it may cause tight supply and increase prices.
Inflation hedge
The price of Bitcoin is usually inversely proportional to the dollar index. Like gold, Bitcoin tends to appreciate when the U.S. dollar depreciates.
The negative correlation between Bitcoin and the US dollar index Source: TradingView.com
In the long term, investors including Tudor Jones believe that Bitcoin is an ideal inflation hedge. Especially after the Fed adopts an average inflation target strategy of 2%, Bitcoin is more attractive to institutions seeking to hedge against inflation.
Portfolio diversification
Bitcoin is not necessarily a single asset. Historically, it has performed well as a portfolio asset and has brought considerable returns to a balanced stock portfolio. Last month, Dan Tapiero, co-founder of 10T Holdings, wrote:
“In the past 5 years, only 3% of the BTC position can increase the return of the 60/40 portfolio from 6.8% to 10.2%.”
The performance of the Bitcoin portfolio Source: Bloomberg, Yahoo Finance, Fidelity Digital Assets, Dan Tapiero
The above four factors make Bitcoin an increasingly attractive portfolio asset for fund managers.
Raoul Pal, CEO of Real Vision Group, further pointed out that at this potentially turning point, investors like Druckenmiller who are bullish on Bitcoin should not be underestimated. He said:
“Stan Druckenmiller, the world’s largest fund manager, just stated that he is bullish on Bitcoin, which is self-evident. This removes all obstacles to any hedge fund or savings insurance investment.”
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