A wealthy person can buy all bitcoins
The astronomical increase in value of Bitcoin
Bitcoin stirs hearts. The cryptocurrency has gained around 140% in value in the last 12 weeks alone. But the past shows that the loss of value can occur just as quickly. The interpretation suggests that there is a lot of speculation here. However, if you are willing to allow Bitcoin to function as a store of value, you should assign it a function similar to that of gold in your portfolio.
Beyond the sometimes emotionally heated debate about the function of Bitcoin and sustainability aspects, more and more investors are interested in cryptocurrency. The enormous increase in value of Bitcoin in recent months has made many an investor's heart beat faster. Those who have been invested for a long time are looking forward to massive profits - if they trigger them - and those who have not dared to enter are wondering whether the time has already been missed and the cryptocurrency will soon start to slide again.
What is clear is that Bitcoin has grown 94% in value since the beginning of this year and even 142% over the last 12 weeks. And if you look back a year (low: 3864 USD), its value has increased by an unbelievable factor of 15. So if an investor got in with $ 1000 in April 2020, they would get rid of $ 15,000 today. An even more extreme picture has emerged over the past two years (February 2019: value around 3100 USD) - here the factor is a whopping 18.5. Calculated over three years it doesn't look that astronomical anymore, but an investor would still make a profit of 580% if he had got in at the time.
Bitcoin as a store of value?
This performance suggests that although Bitcoin is subject to enormous volatility, it has steadily increased in value over longer periods of time, i.e. basically has the character of a store of value in the investment universe. Morningstar's John Rekenthaler says that if you are willing to allow Bitcoin to function as a store of value, you should assign it a function similar to that of gold in your portfolio.
In his most recent column, he is aimed at those who invest in securities such as stocks and bonds and have not yet added Bitcoin to their portfolio - then, by the way, they are in good company. Although there are more than 100 million Bitcoin wallets, most of these accounts are small. In spring 2020, reports cointelegraph.com, only 800,000 Bitcoin wallets held a coin, which corresponds to around 56,000 USD at today's rate. In contrast, about 15 million households in the United States had investable wealth greater than $ 1 million each. In other words, according to Rekenthaler, few wealthy individuals hold substantial stakes in Bitcoin. The same applies to smaller accounts. At this stage, most ordinary investors do not own Bitcoin, at least not for purposes other than transactions.
An inherently speculative and volatile nature
"Bitcoin's underdog status may be appropriate. Cryptocurrencies are a mirage by conventional investment standards - a fiction that has no intrinsic value. Most investors who are saving for their age invest in something more tangible, like stocks , Bonds, that is, assets that generate cash, "says Rekenthaler.
On the other hand, there are also assets like gold. Its primary value arises neither from decorative nor from industrial use, but only from its function as a store of value. And it is recognized as such: whenever someone wants to sell gold, there are buyers. Rekenthaler sums it up: "The metal is valuable because it is valuable." But this does not mean that gold differs significantly from Bitcoin. Because purely functionally and conceptually, these two assets are similar, even if many investors prefer gold, with its millennia-old history, as a store of value - in contrast to the parvenu Bitcoin.
Possible benefits of the Bitcoin crypto asset
Bitcoin can increase returns. Owning an asset that increases in value by 1,000% and more within months is an investor's most important trade in years, even decades. But of course, spotting such opportunities is much easier said than done. According to Rekenthaler, the Chief Investment Officer of Guggenheim Partners claims that a Bitcoin is worth $ 400,000. If you believe him, you should buy bitcoins quickly, and a lot of them.
Rekenthaler sees the more sensible reason to bet on Bitcoin - at least for those who are not gifted with the ability to prophesy - to improve portfolio diversification. Bitcoin is not perfect here, because sometimes it moves in line with other assets - for example, when stocks crashed during the Covid-19 panic in March 2020, it crashed too. Overall, Bitcoin mostly marches according to its own music, notes Rekenthaler. If he continues to do this, he will be a valuable diversifier to some.
Another point: Bitcoin can also - like any real asset - also be viewed as a hedge against rising inflation, although the anti-inflation properties of Bitcoin are completely theoretical, since inflation has not existed since Bitcoin was invented. Here, too, gold and bitcoin fulfill similar roles, according to Rekenthaler.
As he goes on, a market-weighted solution would be suitable for those who see Bitcoin like gold as a hedge against unexpected events. For every share of Bitcoin, you would own ten shares of gold - Bitcoin's market capitalization is 1 trillion. USD; the 6 billion ounces of gold ever mined is about 10 trillion. USD worth. However, a 50/50 split would be a more obvious solution. An investment of 2.5% each in gold and Bitcoin would therefore correspond to a portfolio weight of 5%.
How to participate in Bitcoin
There are two main ways for investors to participate in the Bitcoin course. One is direct, by buying Bitcoin on an exchange and storing it in a wallet. This is the cheapest option for long-term owners because although both Bitcoin exchanges and wallets charge transaction fees, there are no holding fees for long-term investors. However, according to Rekenthaler, it should be borne in mind that although bitcoins are in themselves forgery-proof, the path of bitcoins to the wallet entails uncertainties. And if you lose your wallet password, you can write off your bitcoins.
In Europe, the indirect route is via ETNs that are traded on the stock exchange. These are unsecured certificates that try to map the Bitcoin rate in different ways. Some map the price of an index, such as the VanEck Vectors Bitcoin, while others map average prices at various Bitcoin trading venues, such as the XBT provider Bitcoin Tracker. There are also trackers from Bitcoin Cash, which are split off from the actual Bitcoin, and yet other vehicles not only track the Bitcoin price, but also the price of various cryptocurrencies. "That explains why the performance of these products is very different - let alone that they would be able to map the actual Bitcoin rate 1: 1. What they have in common, however, are the high costs. Bitcoin ETNs come at a cost of between 1, 5 to 2.5% per year - plus transaction costs, "says Rekenthaler.
The indirect approach for US investors is to buy shares in Grayscale Bitcoin, a trust (not a registered fund) that holds bitcoins. Accredited investors can buy from the trust company itself at net asset value, while ordinary investors must buy shares that the accredited investors have made available in the secondary market. Owning Grayscale removes password concerns. However, since the trust has a 2% annual expense ratio, this option is costly for long-term owners, according to Rekenthaler.
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