In 2024, a surprising number of billionaires have become optimistic Bitcoin (CRYPTO: BTC). Some of them are billionaire hedge fund managers. Others are tech entrepreneurs or captains of industry. And there is even a billionaire real estate magnate turned politician who has embraced Bitcoin as a campaign issue.
This sudden bullishness around Bitcoin is somewhat surprising, considering that just a few years ago many of these same billionaires publicly noted that Bitcoin was not something they would ever invest in. So what changed between now and then to convince them to buy Bitcoin?
The rise of Bitcoin as a new asset class
A key change is the growing realization that Bitcoin is now an asset class in its own right, just like stocks, bonds, commodities or real estate. This shift in mindset, which began to manifest during the previous crypto bull market rally, has important implications for portfolio management. This means that, if you are trying to optimize the risk-reward profile of your portfolio, you should consider allocating at least a small portion to Bitcoin.
But how big is an allocation? If you play it safe, 1% should be enough. Even billionaire hedge fund managers seem to limit their total exposure to 1%. But Fidelity Investments recently suggested that a margin between 2% and 5% could make sense for aggressive investors. And Ark Invest’s Cathie Wood even suggested at the start of the year that you might want to take it all the way up to 19.4%.
A new way to invest in Bitcoin
However, this shift in thinking about Bitcoin as an asset class is only part of the story. The launch of the new spot Bitcoin ETFs in January also played a key role in attracting new billionaire investors. These new ETFs gave investors the chance to add Bitcoin to their portfolio simply and easily.
Suddenly, the Modern Portfolio Theory became more than just a theory. With the new ETFs, it became possible to allocate a portion of any portfolio to Bitcoin to get the risk-reward profile just right. You can adjust this allocation without ever having to enter the (sometimes chaotic) cryptocurrency market.
The ‘digital gold’ argument is becoming mainstream
For years, crypto enthusiasts have labeled Bitcoin as “digital gold.” They claimed it could become a safe haven in times of economic or geopolitical uncertainty. And now this thinking is becoming more mainstream among the billionaire investor class. What do you buy when the world seems to be teetering on the precipice? A few years ago the answer would have been gold. Today, the answer could be Bitcoin.
For example, in July, tech billionaire Mark Cuban outlined two potential risk scenarios where you might want to add Bitcoin to your portfolio. One involves geopolitical risks, or the risk that missiles will fly somewhere in the world. And the other concerns inflation risk and the potential devaluation of the US dollar. In either scenario, it could make sense to own Bitcoin, according to Cuban.
Bitcoin’s upside potential
Until now, I haven’t even mentioned Bitcoin’s upside potential. And that’s because this argument seems so obvious, especially with tech billionaire Michael Saylor, founder and executive chairman of MicroStrategy (NASDAQ:MSTR)who now makes around $13 million price predictions for Bitcoin. Apart from Nvidia or any other high-flying tech stock: is there any other asset in the world that has Bitcoin’s upside potential?
Bitcoin is already up 45% in 2024 and remains one of the best performing cryptocurrencies of the year. When you combine that with the fact that Bitcoin has been the best performing asset in the world for the past seven years, it’s easy to see why billionaires are so interested in increasing their exposure to this cryptocurrency. And Bitcoin’s historical track record is now long enough, dating back more than a decade, that we can start to trust the data.
But is Bitcoin right for you?
What makes Bitcoin particularly unique is that it has two qualities that are in high demand by investors around the world: long-term upside potential and protection against downside risk. The world has simply never seen anything like Bitcoin, and even the brightest minds on Wall Street have struggled to make sense of it.
For example, a new white paper from BlackRock says that Bitcoin can be a “risk on” asset and a “risk off” asset at the same time. And Ark Invest’s Cathie Wood suggested last year that Bitcoin is a rare asset that can perform well in both inflationary and deflationary economic environments.
If that is indeed the case, it is easy to see why investors should allocate at least a small portion of their portfolios to Bitcoin. The new spot Bitcoin ETFs allow you to easily add Bitcoin to your portfolio in the time it took you to read this article.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Nvidia. The Motley Fool has a disclosure policy.
Billionaires buy Bitcoin. Should you do the same? was originally published by The Motley Fool
