[The Economist] Why it is wise to add bitcoin to an investment portfolio

[The Economist] Why it is wise to add bitcoin to an investment portfolio

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  1. tldr; An investor seeking high returns without volatility might not gravitate towards cryptocurrencies, like bitcoin, given that they often plunge and soar in value. Harry Markowitz’s genius was in showing that diversification can reduce volatility without sacrificing returns. An investor holding two assets that are weakly correlated or uncorrelated can rest easier knowing that if one plunges in value the other might hold its ground.

    *This summary is auto generated by a bot and not meant to replace reading the original article. As always, DYOR.*

  2. Well seriously they’re coming around to it?

    This is a terrible publication, just look up any YouTube video or article they’ve done comparing bitcoin to our central banking system.

    Tells you everything you need to know about where they are.

  3. >The return from investing in equities is a share of firms’ profits; from bonds the risk-free rate plus credit risk. It is not clear what drives bitcoin’s returns other than speculation.

    It is understandable why many investors hold this sentiment, especially given how the bitcoin community has tended to overemphasize the role of bitcoin as money, and underestimate the value of Bitcoin the network which is largely portrayed as serving no purpose beyond allowing bitcoin, the asset/token, to exist and operate. With the narrative that bitcoiners have had a tendency to promote, solely focused on the asset, it becomes less clear to newer investors what gives the asset any value beyond raw speculation.

    Bitcoiners respond, “well, what gives the dollar value?” And this is hugely important question that has been driving an ever growing examination of money, an examination that would have been unthinkable just a decade ago. But for the type of investor who reads the economist, the answer to that question is obvious: demand for dollars is enforced by the power of the state. Bitcoin has no such mechanism for enforcing demand. It is that absence of forced demand that prevents these types of investors from being convinced by the value of bitcoin’s fixed supply because, after all, value comes from both supply and demand, not just one absent the other.

    Then there is the issue of the characteristics of the asset itself, the way it is transmissible and does not require third party intermediaries. And while those are attractive, the conservative reader of the economist thinks to themselves that these qualities can easily be replicated by CBDCs, and eventually will be, or at least that is what they imagine.

    Once they’ve arrived at the misguided conclusion that “speculation” is the essence of bitcoin, it is from there a small step to become concerned over energy consumption. The concerns over energy are only secondarily about the environment—after all, Bitcoin’s carbon footprint is tiny compared to a vast array of industries. The primary concern is that it is purely speculation that is driving this use of energy, and that is a very powerful narrative harmful to Bitcoin’s reputation. The idea that the excesses of speculative greed are literally destroying the environment, that is the last thing we want to stick in people’s minds when they think of Bitcoin.

    The idea that bitcoin is just speculation derives from a tremendously superficial analysis, and it stems principally from excessive attention to the asset of bitcoin itself, its immediate qualities, rather than to a deeper analysis of the Bitcoin network: the tech, decentralization, 1st, 2nd, and social layers, the broader ecosystem and what it makes possible, and the bitcoin token’s relationship to all of it. This inability to look deeper, no doubt, comes in large part from the disproportionate number of conservative minded boomers that make up this particular investing population. But more importantly, perhaps, it stems from the bitcoin community’s own excessive emphasis on the token and downplaying of the potential of the network.

    The focus on the token, the “digital gold” narrative, is gradually beginning to do more harm than good, and the ESG narrative is indicative of that. While “digital gold” certainly got us through the bear market of 2018/19, and helped kicked start the early phases of the 2020 bull market, it is beginning to outlive its purpose.

    Investors desperately want to know what is the intrinsic value of bitcoin, what justifies the use of energy, and what gives bitcoin value that can’t be reproduced by other projects. The answer to that is—at least in large part—the network.

    Bitcoin mining can become as green friendly as possible, and bitcoin may eventually be seen as an asset to the environment rather than a liability. But what gets us there is an increasing awareness of the self-evident value of Bitcoin the network, that the network is not merely for the purpose of propping up a speculative instrument, but rather just the opposite, and that the network brings tremendous financial infrastructure in a way that other networks simply can’t. It is the network that eventually turns “digital gold” from a nifty slogan into a reality.

What do you think?

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