Now, London-based digital asset management firm CoinShares has recommended investors allocate 4% of their portfolios to bitcoin—arguing “bitcoin, in its growth phase, behaves like a tech stock.”
“Having started its life at a price of zero, it’s no surprise that bitcoin’s investment performance, like that of successful start-ups, has been stellar,” CoinShares’ research strategist James Butterfill wrote in a report out this week.
“As a disruptive technology, bitcoin’s risk profile is rather similar to that of a technology stock: if it reaches its potential, the value could be immense, but at the same time, there is a chance it fails entirely, leaving the value of bitcoins close to zero.”
Meanwhile, tech stocks such as Facebook, Apple, Google and Amazon have soared in recent months, pushed on by coronavirus-induced lockdowns that have accelerated a trend toward digital services and remote working.
The CoinShares report concludes: “[Bitcoin] is beginning to mature into a store of value, although this is not how it has behaved in the past,” and advises investors, “a bitcoin portfolio weight of just under 4% is optimal in a traditional 60/40 portfolio.”
The report chimes with recent research suggesting institutional investors on Wall Street are increasingly moving into the bitcoin and cryptocurrency market. There’s also been interest in bitcoin from high-profile stock market day traders casting around for exciting alternatives to equity.
Elsewhere, bitcoin’s reputation as “digital gold” got a boost earlier this year when legendary macro investor Paul Tudor Jones revealed he was buying bitcoin as a hedge against the inflation he sees coming as a result of coronavirus crisis-induced Federal Reserve and central bank money-printing.
“We are already seeing an increase in bitcoin’s correlation to inflation and gold, also a store of value,” Butterfill said via email, adding that, over the last month, there’s been a “divergence in performance between tech stocks and bitcoin.”
“We expect that some investors will always treat [bitcoin] as a tech stock given its links with tech though, but the transition is happening as we speak.”
Butterfill warned that bitcoin investment is still seen as a “a dirty little secret”—with a large cohort of institutional investors worried about “public ridicule.”
However, “as this ridicule subsides, we will see further institutional participation,” he said.
Across the broader market, assets under management in the bitcoin fund space have risen by $4.2 billion so far this year, with some 50% of this coming from “institutional and intermediaries who tend have buy-and-hold strategies,” according to Butterfill.
“Since 2012, the number of investors holding bitcoin for 12 months or more has risen from 30% to 60%,” said Butterfill, who thinks this highlights a market that’s “different to 2017.”
Bitcoin climbed to around $20,000 in late 2017 before crashing back to around $3,000 a year later, with its huge retail investor-led rally fueled by an explosion of media interest in bitcoin and its underlying blockchain technology.
Bitcoin’s latest rally to over $10,000 per bitcoin, beginning at the end of last month, has rekindled memories of the 2017 gold rush—with some perhaps beginning to feel the “fear of missing out.”