In recent months, billionaires have amassed more and more Bitcoin (BTC). Under Paul Tudor Jones, hedge fund manager Stanley Druckmiller has become the latest billionaire to announce his investment in bitcoin.
There are four main reasons why Bitcoin is more attractive to wealthy investors. The reasons are Bitcoin’s efficiency as a portfolio diversification tool, inflation hedge, an alternative to gold, and a high potential for risk reward.
Bitcoin is increasingly being viewed by investors as “Gold 2.0”
Gold is an important store and a trusted resource for institutional investors. It acts as a hedge against inflation and a hedge against potential market failure.
Investors view gold as an insurance policy to protect the portfolio from market adjustments and macroeconomic uncertainties. Thus, collateralized assets do not yield a large return in the short to medium term.
Bitcoin has the potential to do both when it evolves into a secure port feature with great potential.
The market value of gold is estimated at about 9 trillion dollars. In contrast, Bitcoin is valued at $ 285 billion, leaving a large gap between asset valuations.
In an interview with CNBC on November 9, Druckenmiller emphasized that Bitcoin’s trademark as a store of value is only improving over time. He said:
“Bitcoin can be an asset class that has a lot of appeal as a store of value for both thousands of years and new money from the West Coast – and you know, they’ve gotten a lot of it. It’s been around for 13 years and it’s becoming more and more stable as a brand every day.”
Great likelihood of risk reward
During the interview, Druckenmiller indicated that he owns “many times more gold” than Bitcoin. But the billionaire investor stressed that if gold rises, Bitcoin will also make huge profits and “will likely perform better.”
Compared to gold, the dominant cryptocurrency is “thinner” and “more liquid,” according to the investor. Therefore, there is more potential to rise even though Bitcoin makes up a smaller percentage of the portfolio than gold.
Bitcoin also halves its block reward every four years. With the fixed share of the cryptocurrency at 21 million, the daily BTC mining rate is down 50% after every half.
If the supply of bitcoin decreases, and the demand for it increases, this could lead to lower supply in the long term, which could lead to higher prices.
The game is inflationary
Bitcoin price is often inversely related to the US dollar index. Like gold, when the dollar is down, BTC tends to rise.
In the long run, investors, including Tudor Jones, see Bitcoin as the perfect game for inflation. In particular, after the Fed introduced its 2% inflation targeting strategy on average, BTC has become more attractive to inflation hedge institutions.
Bitcoin does not have to be a separate investment. Historically, it has worked well as a portfolio stake, returning a decent return to a balanced stock-based portfolio last month, Dan Tabiro, co-founder of 10T Holdings, wrote:
“Just putting in 3% BTC in the last five years will increase the performance of the 60/40 portfolio from 6.8% to 10.2%.”
Portfolio management with Bitcoin. Source: Bloomberg, Yahoo Finance, Fidelity Digital Assets, Dan Tapiero.
The combination of the four factors mentioned above makes Bitcoin an increasingly attractive wallet activity for money managers.
And Raul Pal, CEO of Real Vision Group, has also indicated that investors like Bitcoin-hungry Druckenmiller should not underestimate what could be a tipping point. He said:
“The importance of the world’s largest and most respected CFO, Stan Druckenmiller, who just said he has long Bitcoins cannot be overemphasized. This has removed all barriers to investing in hedge funds or donations.”