The viability of investments into cryptocurrencies is a hotly debated
topic. While many investors large and small are still skeptical about
virtual currencies like Bitcoin, a growing number of people are starting
to come around.
In many nations, especially ones fraught with economic and political
instability, virtual currencies offer an alternative way to hedge
against a failing financial climate.
But cryptocurrency investment is also taking off inside of nations
with advanced economies. A March survey from South Korean news agency
Yonhap said those in their 20s were the front runners when it came to buying digital currency.
Early in June, a survey from German retail bank Postbank found how about 30% of people saw virtual currency as a desirable investment opportunity. Almost half of those polled were between 18 and 34.
Even some traditional financial institutions are starting to look into virtual currencies. Andreessen Horowitz is reportedly looking into starting a fund specifically to exchange crypto assets.
A new working paper from the National Bureau of Economic Research also praises Bitcoin’s investment potential. The study,
written by professors Aleh Tsyvinski and Yukin Liu, recommends holding
at least 6% of Bitcoin in a portfolio for an optimal construction.
Banking on Bitcoin
Both authors point how the risk-return trade-off of virtual
currencies like Bitcoin and Ethereum sharply differ than traditional
investments like stocks and currencies.
They note how digital currencies have no exposure to “most common
stock market and macroeconomic factors” and to the “returns of
currencies and commodities.”
According to the study, entitled Risks and Returns of Cryptocurrencies, Sharpe’s
ratio was utilized to show how cryptocurrencies have a higher potential
for returns even though they are more volatile. The two researchers
only looked at Bitcoin, Ethereum, and Ripple to come up with their
results.
Overall, Tsyvinski and Liu said an optimal portfolio would have at
least 6% of in Bitcoin. For those who might be less interested in the
cryptocurrrency, 4% was the suggested amount of investment.
No matter what, the duo wrote how Bitcoin should be 1% of everyone’s portfolio as a diversification strategy.
Investment Optimism Trending Up
Some other financial figures have also started to come out to tout the benefits of investing in Bitcoin.
Bart Smith, the head of trading at Susquehanna Investment Group, told CNBC in mid-July how he saw Bitcoin as the top virtual currency and praised its use as a medium of exchange compared to traditional banks.
Grayscale Investments, the firm behind the Bitcoin Investment Trust
(OTC: GBTC) said in mid-July how they were adding almost $10 million in
new weekly investments.
They said a majority of money came from institutional investors, and
noted the average weekly investment into the Bitcoin Investment Trust
was $6.04 million, as of July 18th.
