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Billionaires have accumulated more and more Bitcoin (BTC) in recent months. Following the lead of Paul Tudor Jones, hedge fund manager Stanley Druckenmiller has become the latest billionaire to publicly disclose his Bitcoin investment.
There are four main reasons why Bitcoin is becoming more attractive to high net worth investors. The reasons are Bitcoin’s effectiveness as a portfolio diversifier, inflation hedge, alternative to gold, and broad risk-reward potential.
Investors increasingly see Bitcoin as “gold 2.0”
Gold is an important store of value and a safe haven for institutional investors. It serves as a hedge against inflation and as a hedge against a potential market downturn.
Investors view gold more as an insurance method to protect a portfolio from market corrections and macro uncertainty. Therefore, safe haven assets typically do not return large returns in the short to medium term.
Bitcoin has the potential to achieve both, as it is evolving into a safe haven asset with huge growth potential.
The market capitalization of gold is estimated to be around $ 9 trillion. In contrast, Bitcoin is worth $ 285 billion, leaving a large gap between the valuations of the two assets.
In an interview with CNBC on November 9, Druckenmiller pointed out that Bitcoin’s brand as a store of value only improves as time goes on. He said:
“Bitcoin could be an asset class that has a lot of attraction as a store of value for both millennials and new West Coast money – and, as you know, they’ve gotten a lot of it. It’s been around for 13 years and every day that passes. acquires more and more stability as a brand “.
Great risk / reward potential
During his interview, Druckenmiller noted that he owns “many, many times more gold” than Bitcoin. But the billionaire investor pointed out that if gold rises, Bitcoin would also see huge gains and “probably work better”.
Compared to gold, the dominant cryptocurrency is “thinner” and “more illiquid,” the investor said. Hence, there is greater upside potential, even if Bitcoin is comprised of a smaller percentage of a wallet than gold.
Bitcoin also suffers a bulk reward which halves every four years. Since the cryptocurrency has a fixed supply of 21 million, the rate at which BTC is mined daily is reduced by 50% after each halving.
If Bitcoin supply decreases but demand increases, it could cause a long-term supply contraction, resulting in higher prices.
Inflation game
The price of Bitcoin is often inversely related to the US dollar index. Like gold, when the dollar falls, BTC tends to rise.
In the long run, investors, including Tudor Jones, view Bitcoin as an ideal inflation game. Especially after the Federal Reserve introduced the 2% average inflation target strategy, BTC has become more attractive to institutions protecting themselves from inflation.
Portfolio diversification
Bitcoin doesn’t have to be a singular investment. It has historically performed well as a portfolio asset, returning decent returns to a balanced equity-based portfolio. Last month, Dan Tapiero, co-founder of 10T Holdings, he wrote:
“Just a 3% BTC position over the past 5 years would have increased the performance of a 60/40 portfolio from 6.8% to 10.2%.”
The combination of the four factors mentioned above makes Bitcoin an increasingly attractive portfolio asset for money managers.
Raoul Pal, CEO of Real Vision Group, further noted that Bitcoin-eager investors like Druckenmiller shouldn’t be underestimated in what could be a turning point. He She said:
“The significance of the world’s greatest and most respected money manager Stan Druckenmiller saying just now that it’s bitcoin long cannot be overstated. This has removed all obstacles to the investment of any hedge fund or financial endowment “.
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