- Is it a useful crisis reserve?
- Can Bitcoin act as an ‘uncertainty hedge’?
- Bitcoin gives access to blockchain transactions
- Bitcoin is more portable than gold, can be insured and it is expected that interest-earning returns will soon be possible in Bitcoin
- Transparency/flexibility as Bitcoin can move between crypto and fiat currencies with ease
For some time now Bitcoin has been perceived as moving with (or inversely to) other assets such as equities and gold as analysts seek to understand what it is. However, although many suggestions have been put forward, no enduring pricing relationship has been found with other asset classes so far.
Bitcoin as a hedge
For this reason, a Bitcoin position may be a superior hedge against systematic market risk.
Additionally, in most macro-events almost all other assets will be correlated together. Although predicting the future is not possible, the expectation in Bitcoin given the information that we have is that Bitcoin is likely to resist this hyper-correlation in a unique way.
Downsides to holding Bitcoin include a lack of familiarity with the asset. Being a novel asset there is a lot to learn about, especially in understanding what it is and what it can or may be able to do. It is unlikely that a person begins this learning journey until they hold the asset and can more fully appreciate its virtues.
In the meantime, Bitcoin is still a volatile asset as it expands its reach to the global investment universe.
Bitcoin and Blockchain
There are clear arguments for and against Bitcoin as an investment. Regulation and compliance issues are still being ironed out globally, but the future role of Bitcoin looks stronger after a productive 2019.
Bitcoin is a gateway to blockchain and all digital assets being developed. Although blockchain arrangements are still not common, the ability of having secure closed money transfer arrangements that can’t be hacked will appeal to business and regulators who will see all the parties to a transaction instantly.
Uses of digital assets are still being developed and the actual future and direction of digital assets and decentralised finance are unknown. However, there is global interest from Governments, central banks, major banking institutions and groups as well as other applications of decentralised finance such as exchanges, banking services and the set of financial instruments found in traditional finance. Due to this, the finance industry and informed investors expect that Bitcoin is here to stay.
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