In the year before the advent of Bitcoin in 2009, there were many attempts to create cryptographically secure digital electronic money. However, Bitcoin holds the top spot among cryptocurrencies and has been the best performing asset for the past seven decades. The dearth of wealth advisors who support client investments in this asset class is striking. A survey of 500 financial advisors found that 72% are interested in investing more in bitcoin and the broader crypto sector if a bitcoin spot ETF is approved. However, less than 9% of advisers feel confident advising clients on this asset class. Research shows a large learning gap between traditional finance and the new financial system.
Bitcoin is heading for its fourth halving, which will happen around April 16, 2024, as the difficulty of mining the coin increases and the reward drops by 50%.
Many thanks to GSR's Brian Ruddick and Matt Kahnke for sharing key considerations for assessing Bitcoin's bullish scenario in today's white paper. Brian talks us through the origins of Bitcoin, its unique features and why this asset is important to advisors.
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Bullish bitcoin case
Bitcoin background
Anonymous Bitcoin developer Satoshi Nakamoto first published a Bitcoin white paper in 2008, outlining his vision for a "peer-to-peer electronic payment system". At a higher level, the Bitcoin blockchain can be thought of as a decentralized database or distributed ledger, a network of computers called nodes that record and maintain a local copy of who does what, who pays, and who pays. These payments are made in bitcoin, a digital asset known as Bitcoin, which is a massive 21 million, and the network uses encryption and consensus to record transactions in a secure, open, and transparent manner (see How Bitcoin Works for an overview). ). . ).
This design - an open network of independent nodes that follows code-based rules, without a central leader to calculate and record accurate transactions locally - creates bitcoin's key features: Bitcoin is decentralized and has no central checkpoint; It is reliable because the nodes use open source software; Censorship resistance as transaction history is stored locally on thousands of independent computers; Immutable, because historical transactions cannot be changed; And without permission, because anyone can participate online. In addition, Bitcoin can be used to replace old financial methods using new internet and blockchain-based railways, and the technology creates future blockchain architectures that add programmability and random computation to a decentralized ledger. This makes the technology behind Bitcoin the foundation for new use cases such as identity, ownership, management, computing, etc. Ownership and management..
Due to its technical limitations and fixed supply, Bitcoin has transitioned from its intended use as a P2P electronic payment system to a store of value/monetary value, exhibiting many of the characteristics of money, including durability, portability, differentiation, and uniformity. . , rare and recognized. While the technology behind Bitcoin opens the door to many uses and benefits, its simple and narrow currency, eternal code, and rarity make Bitcoin the most valuable and reserve currency in the digital world.
Talk about these tenants
A key part of Bitcoin's investment thesis is its status as a non-sovereign reserve digital currency. Given its state-of-the-art decentralization and security, significant network effect and first-mover advantage, it is unlikely that any other crypto-asset can compete with Bitcoin in this regard; Anyone looking for a decentralized digital store of value can choose Bitcoin, reinforcing this trend. Furthermore, the need and importance of a non-governmental store of value owned by the Internet will increase as the world goes digital and Internet users demand a limitless digital currency that cannot be accessed by any centralized entity. First, the cryptocurrency's 425 million users represent only 8% of the population with access to the Internet today - which is not far off - and Bitcoin's market capitalization is only 4% of gold's.
Source: Datareportal.com, Zenith, Crypto.com, CoinGecko, Gold.org, GSR
Crypto options
In addition, Bitcoin can act as a non-sovereign hedge against public policy failures, which can be particularly useful in the context of increased fiscal and monetary intervention around the world. In fact, it suggests that Bitcoin's limited supply protects against the effects of inflation, negative interest rates, and other potentially unusual or harmful policies. While there is a strong correlation between inflation and the price of Bitcoin, Bitcoin's history is too limited to say yet. And there are many examples of investors flocking to Bitcoin when inflation rises or the traditional financial system collapses, as we saw with the recent banking crisis.
Finally, Bitcoin offers many advantages when it comes to portfolio construction. Due to its historically low correlation with traditional assets, Bitcoin offers significant diversification benefits to a balanced portfolio. Moreover, its historical performance more than compensates for its extreme volatility, and this volatility makes Bitcoin a very efficient investment when measured by portfolio allocation. In fact, adding 1-2% to Bitcoin has a very positive effect on risk-adjusted portfolio returns, both in absolute terms and relative to the addition of other asset classes.
In conclusion, Bitcoin is really a new invention. Tens of thousands of computers around the world are coming together to run a secure, permissionless, censorship-resistant and immutable decentralized ledger that reinvents finance, new use cases and new benefits. Bitcoin is the unofficial reserve currency of the digital world, and its role and importance will grow as network effects become stronger and the world becomes more digital. Bitcoin can also act as a hedge to increase aggregate risk-adjusted returns, protecting against global policy errors and cost-effective balanced portfolio diversification.
- Brian Ruddick , Chief Strategist and Matt Kanke , CFA, Research Analyst, GSR
Ask an Advisor: Customers want to know why they need Bitcoin
Q: What are the compelling arguments that Bitcoin is a good store of value?
Answer: Rare. Bitcoin (BTC) has a limit of 21 million bitcoins that can be held in a day, which has made it the king of arbitrage over gold, which has dominated almost everywhere. Skeptical investors have traditionally turned to gold to cushion losses against reserve currencies such as the US dollar. Since its inception, the purchasing power of the dollar has steadily declined, and every day someone complains that we are no longer on the gold standard, and someone else is entering its most profitable years. Money on his phone. As young investors see gold as a problem on many levels, ideas about what play money is can quickly come to mind, from the way workers are viewed in gold mines to the fact that gold itself can be used more than a century ago. Problem. The most unusual thing is that the size is not limited.
Q: What are the bright long-term valuation arguments for Bitcoin?
Answer: Possible federal regulations. The same course per year. at the Massachusetts Institute of Technology on the topic of blockchain. So far, Gensler has chosen to report individual exchanges, such as Coinbase and Binance, before clear regulations are in place. With large financial corporations unwilling or unable to trade crypto-assets in a pre-regulated world, this presents a major challenge for the crypto-rich looking to include their digital assets in their personal wealth plans.
Echo45 Advisors LLC is a registered investment advisor. Advisory services are provided by Echo45 Advisors LLC and its agents only to licensed or unlicensed clients or prospective clients. Past performance is no guarantee of future earnings. Investing involves risk and loss of capital. Echo45 Advisors LLC cannot provide advice without signing a Customer Service Agreement.
- John Henderson , CFP®, CRPC®, CBDA, Founder/CIO, Echo45 Consultants
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