- Have 1% of net worth in something completely uncorrelated to the world
- However, there's no knowing if bitcoin will remain uncorrelated if “all other risk assets if shit really hits the fan,” – said analyst Ceteris Paribus
- Also, markets are falling apart which “seems to have crept into crypto” and there are no fresh funds moved into crypto in the current state of panic – economist and trader Alex Kruger
Chamath Palihapitiya, the chairman of Virgin Galactic, yet again doubled down on bitcoin being a “fantastic hedge.”
While talking to CNBC's “Squawk Box,” the billionaire investor disagreed with Berkshire Hathaway chairman Warren Buffett on the value of bitcoin, that Buffett earlier this week said has no value because cryptos do not produce anything. The long term bitcoin critic said, he doesn't own any bitcoin or crypto and he never will. Palihapitiya said on Wednesday,
“He is completely wrong and outdated on this point of view.”
“I think he’s an exceptional person. I’ve learned an enormous amount, both from afar and the few interactions I’ve had with him.”
1% of net worth should be in an uncorrelated asset
A bitcoin proponent, Palihapitiya said his views on bitcoin being an important part of an investors’ portfolio haven’t changed since the last time he wrote about it in Bloomberg in 2013.
“Everybody should have 1% of their assets in bitcoin specifically,” said Palihapitiya, who has also founded the investment firm Social Capital.
In the current environment where stocks are having the second-biggest drop ever amidst the deadly coronavirus scare and where the financial industry is running on exuberant amount of leverage, bitcoin is the money under your mattress.
Also, in a world where every financial instrument is correlated, an average individual citizen of any country in the world needs an uncorrelated hedge when there’s a lot of risk to the downside. Palihapitiya said,
“I don’t think when you wake up and see a coronavirus scare and the Dow down 2,000, you should not be going in and buying bitcoin. That is an idiotic strategy.”
“I think a reasonable strategy is to say 1% of my net worth should be in something completely uncorrelated to the world and how the world works. You quietly over some period of time accumulate a position and then just never look at it again and hope that that insurance under the mattress never has to come due. But, if it does, it will protect you.”
Chamath Palihapitiya predicting $1,000,000 per #bitcoin with a strategy called "hodl" [1/26/20]
— Altcoin Daily (@AltcoinDailyio) February 26, 2020
No knowing if Bitcoin will remain uncorrelated
Analyst Ceteris Paribus agrees with Palihapitiya but says there's no knowing if bitcoin will remain uncorrelated if “all other risk assets if shit really hits the fan.”
In the past 10 years, bitcoin only lived in one type of world, a risk-on period with near-constant quantitative easing, but not through a financial crisis. Paribus said,
“What we do know is that bitcoin is uncorrelated to other assets in this particular environment.”
However, historically uncorrelated assets can converge in a time of crises, argues the analyst. As we saw this week, with bitcoin falling along with the stock market, it is perceived as risk and the correlation may further “increase with other risk assets (stocks) in a true time of panic.”
However, “portfolios should include it” still. Also, there's’ no knowing if Bitcoin has been doing bitcoin things or having correlated risk-off moves.
Economist and trader Alex Kruger also pointed out that it’s good to be mindful of global markets risk appetite, even if “crypto is a mostly uncorrelated asset class.” Markets are falling apart which he says “seems to have crept into crypto.” He added,
“there had been lots of talk recently of traditional asset allocators moving funds into crypto. It is hard to see them moving fresh funds into crypto if the world is in a state of panic and their portfolios are suffering. Same applies to regular investors.”