Major U.S. investment management firm VanEck has listed 4 reasons why Bitcoin improves an upward portfolio.
On October 8, VanEck released a study called “The Investment Case for Bitcoin,” which aimed to determine the role of cryptocurrencies in investment portfolios. According to VanEck, the company attempted to file a Bitcoin exchange-traded fund (ETF) with U.S. regulators in 2018. Bitcoin is a combination of “durability, scarcity, privacy.” and is an asset that has all monetary value in its nature.”
Monetary value instead of intrinsic value
Since VanEck often refers to Bitcoin as digital gold, the asset management company sees Bitcoin as a potential store of value. While Bitcoin critics often point to Bitcoin’s lack of intrinsic value as a primary argument for rebuttal, VanEck calls for a clear distinction between the terms intrinsic value (IV) and monetary value. (MV). According to the company, Bitcoin actually has MVs just like gold, silver, artwork, or US dollars.
In the full research, VanEck emphasizes nothing that ever supported “MV”:
“MV is inherently betting that an asset will maintain or increase in value in the future. Assets with MVs can store value and reflect future IVs. This concept can make people uncomfortable but it has always been true from the dawn of civilization to the present.”
Low correlation with traditional assets
According to VanEck, Bitcoin also has the potential to increase portfolio diversification due to its low correlation with traditional asset classes such as gold, bonds, and broad market equity indices.
To prove this point, the company has provided a table of Bitcoin’s correlation with major market indexes such as the S&P 500, oil, real estate, measured on a scale of -1 to 1, from February 2012 to July 2019.
Scarcity reinforced by halving
In the report, VanEck also cited Bitcoin scarcity or limited supply as the main reason for the asset’s success. VanEck explained the Bitcoin halving, which cuts the block reward by 50% compared to the Bitcoin production rate, is programmed to happen approximately every 4 years. Every previous halving has resulted in Bitcoin price growth.
The next Bitcoin halving is scheduled for May 2020. As such, prominent Bitcoin bull and programmer John McAfee recently cited Bitcoin scarcity as the main reason for the price to hit $1 million per coin in 2020.
Bitcoin adoption is growing with a volume exceeding 400,000 permissionless transactions per day, while Bitcoin on-chain transactions make up a notable portion of SWIFT transactions. The company also noted that existing exchanges are active and will not disappear, such as Bitfinex and Binance.
In mid-September, Chicago Board Exchange’s BZX Equity Exchange withdrew its proposed VanEck/SolidX Bitcoin ETF prior to review by the US Securities and Exchange Commission.