Bitcoin Allocation to Institutional Investment Portfolios Significantly Enhances the Returns: VanEck Report

In its paper called “The Investment Case for Bitcoin,” VanEck, an investment firm shares that just like gold, silver, diamonds, gemstones, artwork, and US Dollars, Bitcoin has monetary value (MV) but doesn’t have intrinsic value like equities, fixed income, coin, wheat, oil, and copper.

“Nothing ever “backs” MV” as it is inherently a bet that an object will increase in value in future and needn’t relate to any sovereign power:

MV actually usually arises from special circumstances and Bitcoin is an MV because it is scarce and has strong privacy characteristics. They also doesn't need to be attached to a payment system.

“Bitcoin is not a terrific payment system but certainly better than artwork and gold,”

it states.

The leading cryptocurrency, the paper says, has the potential to become the digital gold as it is better than the physical metal when it comes to being portable, divisible, secure, smart, decentralized, and easily transactable.

The paper further touches on the lack of institutional investors in the space which largely has to do with

“bitcoin’s nature as a bearer asset and the limited “plumbing to connect bitcoin with capital markets.”

Bitcoin’s Role in an Investment Portfolio

VanEck uses stock to flow ratio, which is the

“amount of an asset that is held in reserves divided by the amount of that asset produced for a selected time period,”

to define Bitcoin’s future value that suggests BTC has potential to grow based on historical data and scarcity.

This brings us to the next reward halving that occurs every four years and is now fast approaching in May 2020.

As can be seen, historically the price of Bitcoin increased following halvings.

Interestingly, Bitcoin has been the best performing asset in comparison to stocks, bonds, and gold for the past 5 years.

The leading cryptocurrency also has a “very low correlation” with traditional asset classes like bonds, gold, and broad market equity indices.

As such, VanEck advises to make an allocation to Bitcoin in the institutional investment portfolios to enhance its risk and return reward profile.

“A small allocation to bitcoin significantly enhanced the cumulative return of a 60% equity and 40% bonds portfolio allocation mix while only minimally impacting its volatility.”

When it comes to adoption, cryptocurrency exchanges are “healthy” and trading is not concentrated while BTC ownership is “well distributed.” CME Bitcoin futures meanwhile are setting new trading records.

Bitcoin network is also growing as over 400,000 permissionless transactions a day are now processed, exhibiting significant network value and 10435 nodes are being run all over the world.

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