That’s easy. Bitcoin is still in its infancy.
No, you aren’t too late. Yes, bitcoin is still here – and it’s growing stronger every day. The foundations that have driven bitcoin’s increasing value over the last decade still exist and there are four fundamental reasons why now may be the time to invest:
1. It’s Still Early: Bitcoin stands to capture value from a spectrum of large and diverse markets. Its value today is only a tiny fraction of the markets it stands to disrupt, which reach well into the trillions of dollars. What if Bitcoin takes even a quarter of the store-of-value market held by gold? What if it becomes the currency of choice for a few of the more unstable nations plagued by hyperinflation? What if it becomes one of the most popular currencies for mobile payments? These are just a few possible use cases.
DISRUPTION POTENTIAL (USD)1
HYPOTHETICAL BITCOIN PRICE AT 10% PENETRATION OF MAJOR MARKETS (USD)*
2. Generational Shift in Wealth: With an estimated $68 trillion in generational wealth changing hands over the next 25 years (including $68 trillion from Boomers), we may see more investment dollars make their way into uncorrelated assets like Bitcoin. A recent survey from Blockchain Capital shows millennials are much more likely to buy, hold, and use Bitcoin – the majority of which have not even hit their prime earning years yet. As a new generation is evaluating where and how to invest their money, Bitcoin is increasingly part of the mix.
SHIFTING DEMOGRAPHICS OF GENERATIONAL WEALTH3
3. Network Fundamentals Are Strong: Through a global transaction network, bitcoins can be sent securely across borders, in any amount, at low costs, as seamlessly as a text message, and without the need for trusted third-parties. Over 100,000 merchants worldwide now accept bitcoin.3 The number of active wallet addresses on the Bitcoin network continues to grow – a key sign of a vibrant and growing financial ecosystem – while the methods for sending, receiving, and storing bitcoins continue to improve at both the consumer and institutional levels.
BITCOIN NETWORK USER GROWTH VS. MARKET CAP5
4. Diversification is a Rewarding Strategy: Stocks and bonds don’t seem to be going away, but investing in digital currencies, like bitcoin, may help investors build even more diversified portfolios (with higher returns per unit of risk). Bitcoin has historically performed as an uncorrelated asset, meaning it does not necessarily move with stock or bond markets. As a result, it may provide benefits to an investment portfolio that previous generations of investors could only have dreamed of.
By sizing a bitcoin allocation properly, as part of a traditional investment portfolio (e.g. a 1-5% allocation), the risks of investing in bitcoin can be mitigated relative to potential gains. This is the power of diversification.
HYPOTHETICAL SIMULATED DIVERSIFIED PORTFOLIO WITH BITCOIN6*
September 25, 2013 through August 31, 2019
The Age of Bitcoin has only just begun, and the only better time to invest was yesterday.
Grayscale’s Director of Investments & Research, Matthew Beck, explores this idea in more detail in the Grayscale Insights Report: Bitcoin & the Rise of Digital Gold available at grayscale.co/insights/bitcoin-the-rise-of-digital-gold/.
[1] Source: Grayscale, Bloomberg, World Gold Council, CoinMarketCap.com.
[2] Source: Grayscale. Bloomberg. World Gold Council. “Hypothetical Bitcoin Price” is based on the fully-diluted supply of 21 million bitcoins. THE BITCOIN PRICES SHOWN ARE PURELY HYPOTHETICAL AND SPECIFICALLY ASSUME THAT BITCOIN PRICES WILL INCREASE. Bitcoin has historically experienced significant intraday and long-term price swings. Past performance is not necessarily indicative of future results and the financial projections set forth herein are subject to great uncertainty. There can be no assurance that the projected hypothetical prices will be achieved. Actual future prices will depend on numerous factors, including the future liquidity of Bitcoin, all of which may differ from the assumptions on which the hypothetical prices contained herein are based. NO REPRESENTATION IS BEING MADE THAT ANY RESULTS WILL OR ARE LIKELY TO ACHIEVE PRICES SIMILAR TO THOSE SHOWN.
[3] Source: Cerulli Associates: “The Great Wealth Transfer.” U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2018: Shifting Demographics of Private Wealth. November 29, 2018.
[4] Source: Due.com. Bitpay.
[5] Source: Grayscale, Coin Metrics. As of August 31, 2019. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS.
[6] Source: Bloomberg, CoinMarketCap.com. Performance is shown from September 25, 2013 through August 31, 2019. Annualized figures are based on 252 trading days. “Global 60/40” consists of a 60% allocation to the iShares MSCI ACWI and a 40% allocation to the Vanguard Total International Bond ETF. Return attribution is based on the excess returns of the hypothetical simulated port- folios including Bitcoin as compared to the “Global 60/40”. Performance of Bitcoin is based on the daily values from CoinMarket- Cap.com. THE GLOBAL 60/40 + 1%/3%/5% BITCOIN RESULTS ARE HYPOTHETICAL AND ARE NOT BASED ON ACTUAL RETURNS OR HISTORICAL PERFORMANCE. BITCOIN HAS HISTORICALLY EXPERIENCED SIGNIFICANT INTRADAY AND LONG-TERM PRICE SWINGS AND PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Component asset weights are held constant over the period. The Sharpe Ratio is calculated as the annualized excess return of the portfolio over the 3-month US T-Bill divided by the standard deviation of excess returns. Ratio improvement is calculated by taking the Sharpe Ratio of the Global 60/40 + 1%/3%/5% Bitcoin Portfolios and dividing each by the Sharpe Ratio of the Global 60/40 Portfolio.
* HYPOTHETICAL SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns. Unlike an actual performance record, simulated results do not represent actual trading or the costs of managing the portfolio. Also, since the trades have not actually been executed, the results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the assets that we have chosen to analyze.
