The case for bitcoin
A research-based framework may help investors understand bitcoin’s unique features and risk/return characteristics as an alternative investment within a multi-asset class portfolio, and the potential role of a small allocation.
- Bitcoin is a fixed-supply digital bearer asset that provides the medium of exchange for a potentially transformative technology. It has certain characteristics similar to gold, venture investments, and other network goods. Its future price path will thus depend on the adoption rate and the robustness of the network that it underlies.
- A research-based framework with small hypothetical allocation ranges may help determine an appropriate path to investing in bitcoin. We provide a macroeconomic foundation and quantitative analysis to explore the key investment theses that one must believe to invest, considerations about sizing and sourcing, and how to think about risk.
- Our analysis suggests portfolio allocations of 2%–5% could have an outsized positive impact in an optimistic adoption scenario, allowing annual retirement spending to increase 1%–4%, while limiting the loss to annual retirement income to less than 1% if bitcoin were to lose all its value.
- Investors have several options to gain exposure, including a direct investment and spot/futures-based investments. The recent regulatory approval of spot exchangetraded products (ETPs) as registered investment products in the United States could open access to a broader group of investors—enabling easier access for advisors and their clients.
- Fidelity defines digital assets as a category of alternative investments. Less correlated assets such as alternative investments may make sense in an environment where the traditional 60/40 portfolio is struggling due to regime change defined by higher inflation, higher interest rates, and heightened volatility.
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Crypto as an asset class is speculative, highly volatile, can become illiquid at any time, and is for investors with a high risk tolerance. Crypto may also be more susceptible to market manipulation than securities.
Digital assets are not insured by the Federal Deposit Insurance Corporation (FDIC) or protected by the Securities Investor Protection Corporation (SIPC).
When considering bitcoin's gold-like characteristics, it is important to keep in mind the many differences, including: The significant risk and speculative nature of investing in cryptocurrencies, and the risks associated with distributed ledger technology. Notwithstanding bitcoin's gold-like characteristics, there are many obvious differences between bitcoin and gold.
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