In 2024, a surprising number of billionaires have turned bullish on Bitcoin (CRYPTO: BTC). Some of them are billionaire hedge fund managers. Others are tech entrepreneurs or captains of industry. And there's even a billionaire real estate mogul-turned-politician who has embraced Bitcoin as a campaign issue.
This sudden bullishness around Bitcoin is somewhat surprising, given that just a few years ago, many of these same billionaires were publicly remarking that Bitcoin was not something they'd ever invest in. So, what has changed between now and then to convince them to buy Bitcoin?
The rise of Bitcoin as a new asset class
A key change has been the growing realization that Bitcoin is now a stand-alone asset class -- just like stocks, bonds, commodities, or real estate. This shift in mindset, which began to take hold during the previous crypto bull market rally, has important ramifications for portfolio management. This means that, if you are trying to optimize the risk-reward profile of your portfolio, you should consider allocating at least a tiny portion to Bitcoin.
But just how big of an allocation? If you are playing it safe, then 1% should suffice. Indeed, even billionaire hedge fund managers appear to be limiting their overall exposure to 1%. But Fidelity Investments recently suggested that a range between 2% and 5% could make sense for aggressive investors. And Cathie Wood of Ark Invest even suggested at the start of the year that you might want to ratchet it all the way up to 19.4%.
A new way to invest in Bitcoin
However, this shift in thinking about Bitcoin as an asset class is just part of the story. The launch of the new spot Bitcoin ETFs in January also played a key role in attracting new billionaire investors. These new ETFs gave investors a chance to add Bitcoin to their portfolio easily and conveniently.
All of a sudden, Modern Portfolio Theory became more than just a theory. With the new ETFs, it became possible to allocate part of any portfolio to Bitcoin to get the risk-reward profile just right. You can adjust this allocation without the need to ever enter the (sometimes chaotic) cryptocurrency market.
The "digital gold" argument goes mainstream
For years, crypto enthusiasts have talked up Bitcoin as "digital gold." They claimed it could become a safe haven asset during times of economic or geopolitical uncertainty. And now this thinking is increasingly going mainstream among the billionaire investor class. What do you buy when the world appears to be teetering on the precipice? A few years ago, the answer would have been gold. Today, the answer could be Bitcoin.
In July, for example, tech billionaire Mark Cuban outlined two potential risk scenarios in which you might want to add Bitcoin to your portfolio. One involves geopolitical risk, or the risk that missiles could start flying in some part of the world. And the other involves inflationary risk and the potential devaluation of the U.S. dollar. In both scenarios, says Cuban, it could make sense to own Bitcoin.
Bitcoin's upside potential
Until now, I haven't even mentioned Bitcoin's upside potential. And that's because this argument seems to be such a no-brainer, especially with tech billionaire Michael Saylor, founder and executive chairman of MicroStrategy (NASDAQ: MSTR), now tossing around $13 million price predictions for Bitcoin. Aside from Nvidia or some other high-flying tech stock, is there any other asset in the world that has Bitcoin's upside potential?
Already up 45% in 2024, Bitcoin remains one of the top-performing cryptocurrencies of the year. When you combine that with the fact that Bitcoin has been the top-performing asset in the world in 7 of the past 10 years, it's easy to understand why billionaires are so interested in increasing their exposure to this crypto. And Bitcoin's historical track record is now long enough, dating back more than a decade, that we can start to trust the data.
But is Bitcoin right for you?
What makes Bitcoin particularly unique is that it has two properties that are very much in demand by investors everywhere: long-term upside potential and downside risk protection. The world simply has not seen anything like Bitcoin, and even the brightest minds on Wall Street have struggled to make sense of it.
For example, a new white paper from BlackRock says that Bitcoin can be a "risk on" asset and a "risk off" asset at the same time. And Cathie Wood of Ark Invest last year suggested that Bitcoin is a rare asset that can perform well both in inflationary and deflationary economic environments.
If that is indeed the case, it's easy to see why investors should be allocating at least a tiny portion of their portfolios to Bitcoin. With the new spot Bitcoin ETFs, you can easily add Bitcoin to your portfolio in the time it took you to read this article.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Nvidia. The Motley Fool has a disclosure policy.
Billionaires Are Buying Bitcoin. Should You Do the Same? was originally published by The Motley Fool