By CCN: On CNBC’s Fast Money, Morgan Creek Digital founder and CEO Mark Yusko, said that bitcoin makes a great diversifying asset in a stocks portfolio and that every investor should invest in the dominant cryptocurrency.
— CNBC's Fast Money (@CNBCFastMoney) May 22, 2019
Since January, in less than six months, the bitcoin price has risen by more than 100 percent year-to-date, outperforming every major stocks index such as the S&P 500.
Bitcoin Over Stocks? Or Both?
In December 2018, on CNBC, Yusko offered a $1 million bet to any investor or institution willing to take it on the long-term performance of bitcoin over the next ten years.
Yusko said that no investor took the bet, indicating that investors have become more cautious in providing reckless predictions about bitcoin potentially losing all of its value over the long run.
I was lucky. I happened to be on Melissa's more afternoon show back in December, the week when bitcoin was at $3,150 and she said 'what do you think?' and I said 'look, we've issued the Morgan Creek Digital crypto challenge, we will take BTC over the next ten years starting January 1 and we'll take anybody who wants to take the other side in a million dollar charity bet', we got no takers.
It is a good thing they did not take it because bitcoin is up over a hundred percent this year, the S&P is up 14 percent. I think going forward from here, even over the next ten years, it's not going to be close. Bitcoin is a great diversifying assets. It has very low correlation, it should be on everybody's portfolio.
Although bitcoin bulls including Yusko expect BTC to become one of the best performing assets over the next ten years, he emphasized that he does not encourage investors to sell a large chunk of their portfolios to commit to the crypto market.
Yusko noted that BTC performs well as a diversifying asset due to its lack of correlation with stocks, the broader financial market and traditional asset classes.
Instead, the hedge fund veteran said that 1 to 5 percent of a portfolio would be a reasonable commitment to bitcoin, which is just a big enough investment to generate a large return if BTC succeeds and a small enough portion to let go if it fails.
“I never said anyone should sell all their stocks and put money in bitcoin... Have always been very clear BTC is a diversifying asset, should be 1% to 5% of portfolio. Can make argument for higher allocations for younger investors with longer investment horizons,” Yusko said.
Similarly, PayPal director and Xapo CEO Wences Casares wrote in an essay entitled “The case for a small allocation to bitcoin” that a portfolio that exceeds $10 million in assets under management should invest up to 1 percent in BTC.
If bitcoin succeeds in establishing itself as a premier store of value alongside the likes of gold, Casares said that the $100,000 investment could be worth more than $25 million.
“I suggest that a $10 million portfolio should invest at most $100,000 in Bitcoin (up to 1% but not more as the risk of losing this investment is high). If Bitcoin fails, this portfolio will lose at most $100,000 or 1% of its value over 3 to 5 years, which most portfolios can bear. But if Bitcoin succeeds, in 7 to 10 years those $100,000 may be worth more than $25 million, more than twice the value of the entire initial portfolio,” he said.
What’s Needed to Push BTC as a Store of Value?
The Bitcoin blockchain protocol has been up and running for more than ten years without disruption, supplemented with a noticeable improvement in custodial infrastructure with the involvement of companies like Fidelity, Nasdaq, TD Ameritrade, and ICE.
For multi-million dollar portfolios and institutions to commit to BTC as a diversifying asset alongside stocks, they would require trusted, regulated, and reliable custodial solutions.
In a few months, ICE’s Bakkt is set to launch its bitcoin futures market and Fidelity is preparing to launch custodial services for major crypto assets, which could make the environment more compelling for portfolio managers.