Investors face many challenges in today’s financial markets. It feels like the volume of news and information flow is increasing by the day. There are so many differing views and opinions out there that it can be difficult to navigate issues like currency debasement, rising inflation and interconnected global markets.
Many of you know that I have been a fan of Bitcoin for quite a few years now. As a financial advisor it has been difficult to suggest that investors should have some in their portfolios. It is highly volatile, and a clear view on regulation has been hard to come by. Too risky, too volatile. Perhaps now though, it is something to consider.
There are a few issues to consider:
Fiat Currency is losing value at an alarming rate. The Federal Reserve has increased the supply of money by 40% since 2020. The big increase came during Covid, but they haven’t stopped printing money since then, and this monetary expansion does erode the purchasing power of the dollar over time.
Bitcoin was designed (after the Global Financial Crisis in 2008) to counter this. It has a fixed supply of 21 million coins, of which about 19.6 million are in circulation now, with a diminishing amount being mined over time. This is due to a programmed event called “halving” which happens approximately every four years, where the reward paid to miners for validating transactions and adding new blocks to the blockchain is reduced by 50%. This halving mechanism is designed to control the supply of Bitcoin. As the reward decreases, the rate at which new Bitcoin enters circulation slows down. This controlled supply helps to maintain Bitcoin’s value and prevent inflation. The last bitcoin is expected to be mined in 2140! Bitcoin shares some of the characteristics of gold, but with some modern advantages such as portability, divisibility and accessibility.
The volatility of Bitcoin is quite possibly the most cited reason why it is not a suitable investment. And volatile it is. In its short existence, both the meteoric rises in the price, and the painful pullbacks of 80% are sometimes enough to turn any logical investor away. It is unnerving, but also creates opportunities for investors who know what to expect.
Diversification is a cornerstone of sound investing, and Bitcoin has very low correlation with equities and bonds, which makes it a unique tool for providing risk adjusted returns. A small allocation of say 1-3% can provide significant benefits. Studies using back tested data show that despite the volatility, owning Bitcoin in a traditional portfolio does enhance returns.
Regulation has also been a sticking point for traditional investors with claims that Bitcoin is used for nefarious purposes, and is the currency for fraud, ransom and illegal transactions. I’m sure it is, but don’t for one minute think that fraudsters and criminals don’t use the mighty US dollar for the same purposes. Criminals are criminals, and will find a way regardless of the financial mechanism; gold, blood diamonds, petrodollars. So yes, Bitcoin has been projected badly, but I think a little reason needs to be applied.
There are two good things that have come out of the bad publicity. One that the regulatory environment is evolving rapidly. There is still uncertainty about how it will be treated, but advances in security through insured custodial services and advanced wallet technology are reducing risks for investors.
There is also the start of institutional adoption. Mavericks like Michael Saylor and Elon Musk have included Bitcoin as part of their corporate strategy and benefitted hugely from it. When a company like Microsoft puts an item on their AGM agenda to discuss the adoption of Bitcoin as part of their treasury, then a person may want to sit up and take notice. The AGM takes place on 10 December and the board has advised shareholders to reject the proposal, but the fact that it is on the agenda is meaningful! Institutional interest gives credibility to Bitcoin.
The fact that a number of ETFs have been launched, making the investment more accessible to individuals through large financial institutions, makes Bitcoin an investment opportunity for traditional investors and not just tech enthusiasts.
As always, I would be more than happy to discuss Bitcoin with anyone who has an interest in it, so please feel free to make contact if you have any questions or are just interested in finding out more!
Does Bitcoin have a place in your portfolio
Investors face many challenges in today’s financial markets. It feels like the volume of news and information flow is increasing by the day. There are so many differing views and opinions out there that it can be difficult to navigate issues like currency debasement, rising inflation and interconnected global markets.
Many of you know that I have been a fan of Bitcoin for quite a few years now. As a financial advisor it has been difficult to suggest that investors should have some in their portfolios. It is highly volatile, and a clear view on regulation has been hard to come by. Too risky, too volatile. Perhaps now though, it is something to consider.
There are a few issues to consider:
Fiat Currency is losing value at an alarming rate. The Federal Reserve has increased the supply of money by 40% since 2020. The big increase came during Covid, but they haven’t stopped printing money since then, and this monetary expansion does erode the purchasing power of the dollar over time.
Bitcoin was designed (after the Global Financial Crisis in 2008) to counter this. It has a fixed supply of 21 million coins, of which about 19.6 million are in circulation now, with a diminishing amount being mined over time. This is due to a programmed event called “halving” which happens approximately every four years, where the reward paid to miners for validating transactions and adding new blocks to the blockchain is reduced by 50%. This halving mechanism is designed to control the supply of Bitcoin. As the reward decreases, the rate at which new Bitcoin enters circulation slows down. This controlled supply helps to maintain Bitcoin’s value and prevent inflation. The last bitcoin is expected to be mined in 2140! Bitcoin shares some of the characteristics of gold, but with some modern advantages such as portability, divisibility and accessibility.
The volatility of Bitcoin is quite possibly the most cited reason why it is not a suitable investment. And volatile it is. In its short existence, both the meteoric rises in the price, and the painful pullbacks of 80% are sometimes enough to turn any logical investor away. It is unnerving, but also creates opportunities for investors who know what to expect.
Diversification is a cornerstone of sound investing, and Bitcoin has very low correlation with equities and bonds, which makes it a unique tool for providing risk adjusted returns. A small allocation of say 1-3% can provide significant benefits. Studies using back tested data show that despite the volatility, owning Bitcoin in a traditional portfolio does enhance returns.
Regulation has also been a sticking point for traditional investors with claims that Bitcoin is used for nefarious purposes, and is the currency for fraud, ransom and illegal transactions. I’m sure it is, but don’t for one minute think that fraudsters and criminals don’t use the mighty US dollar for the same purposes. Criminals are criminals, and will find a way regardless of the financial mechanism; gold, blood diamonds, petrodollars. So yes, Bitcoin has been projected badly, but I think a little reason needs to be applied.
There are two good things that have come out of the bad publicity. One that the regulatory environment is evolving rapidly. There is still uncertainty about how it will be treated, but advances in security through insured custodial services and advanced wallet technology are reducing risks for investors.
There is also the start of institutional adoption. Mavericks like Michael Saylor and Elon Musk have included Bitcoin as part of their corporate strategy and benefitted hugely from it. When a company like Microsoft puts an item on their AGM agenda to discuss the adoption of Bitcoin as part of their treasury, then a person may want to sit up and take notice. The AGM takes place on 10 December and the board has advised shareholders to reject the proposal, but the fact that it is on the agenda is meaningful! Institutional interest gives credibility to Bitcoin.
The fact that a number of ETFs have been launched, making the investment more accessible to individuals through large financial institutions, makes Bitcoin an investment opportunity for traditional investors and not just tech enthusiasts.
As always, I would be more than happy to discuss Bitcoin with anyone who has an interest in it, so please feel free to make contact if you have any questions or are just interested in finding out more!
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.