Not so long ago, cryptocurrency was considered by the mainstream financial media to be nothing more than a speculative fad. That era is over. The 2020s will be the first full decade where cryptocurrency is a legitimate asset class, and investors who don't accept that reality and adjust their portfolios appropriately are missing out.
Is Bitcoin Worth Investing In?
Here's why:
- Mainstream adoption.
- Minimizing trust in governments and institutions.
- Cryptocurrency is a hedge.
- A deterministic asset.
Mainstream Adoption
Although some might consider this first point to be the weakest, investors who believe in the power of long trends should pay close attention to the gradual mainstreaming of some of the "blue chip" cryptocurrencies like Bitcoin, or BTC and Ethereum's cryptocurrency, known as ether, or ETH.
Specifically, some of the biggest and most innovative companies in the world are buying crypto in bulk: In February, Tesla (ticker: TSLA), an S&P 500 member and one of the most valuable publicly traded companies in the U.S., bought $1.5 billion worth of Bitcoin.
Digital payments company Square (SQ) also took a chunk of its balance sheet and put it in Bitcoin, buying $170 million worth of the digital currency in late February.
Further, the leading cryptocurrency exchange, Coin base, is about to go public at a valuation of around $100 billion, and the world's largest derivatives exchange, CME Group (CME), began offering Bitcoin futures in late 2017. Just last month, it began offering ether futures. Ether is the second-largest cryptocurrency by market capitalization, next to Bitcoin.
That's just a drop in the bucket compared to the total addressable market of money that can still realistically be converted to cryptocurrencies. If Apple (AAPL), for instance, converts just 10% of its cash into Bitcoin, the company would end up buying about $19.6 billion worth of Bitcoin – more than 10 times Tesla's landmark $1.5 billion purchase. Then you've got trillions more in corporate cash still sitting on the sidelines – not just in the U.S. but across the world.
Minimizing Trust in Governments and Institutions
It's not just a growing chorus of corporate support that gives blockchain-based currencies staying power. From the perspective of an individual investor, digital currencies like BTC and ETH help hedge a risk that few retail investors consider when making portfolio decisions: the trust in governments and financial institutions themselves.
"Investing in Bitcoin and Ethereum are natural ways to minimize the trust layer in governments and institutions that have failed to look out for the public and protect individuals from the fragility of traditional financial systems as they are both assets that do not require central parties to verify, create or administrate them," says María Paula Fernandez, advisor to the board of directors at Golem Network, a decentralized cloud computing network.
Cryptocurrency Is a Hedge
Patrick Ward is the founder of NanoGlobals and a former employee at Wedbush Securities, one of the first clearing houses to offer Bitcoin futures. He says that even as recently as 2017, Bitcoin was considered by many on Wall Street as nothing more than a speculative extravagance. That year, JPMorgan Chase & Co. (JPM) CEO Jamie Dimon famously denigrated it as a fraud, saying "if you're stupid enough to buy it, you'll pay the price for it one day."
"Now, in a time of inflated stock prices and unprecedented economic uncertainty, the case for crypto in a household portfolio is simple: diversification," Ward says.
"In times of uncertainty, gold and bonds were seen as the 'safe haven' investments and cryptocurrency, to its credit, has managed to capture investor attention for the same reason," Ward says. "Beyond its newfound status as a counterweight to stocks, in the immediate term, cryptocurrency helps avoid too much exposure to U.S. currency for conservative investors (who) are used to keeping a large portion of their portfolio in cash."
A Deterministic Asset
Digital currencies are assets that simply weren't possible for the vast majority of financial history. Arguably the closest asset class to something like Bitcoin in the past would be something like commodities or gold in particular – a scarce asset, widely recognized as something coveted by humanity across the globe and considered a store of value.
Daniel Polotsky, CEO and co-founder of CoinFlip, the leading Bitcoin ATM operator globally, argues that the combination of corporate interest in Bitcoin and the unprecedented increase in money supply in the U.S. makes the case for Bitcoin more compelling than ever before for many Americans.