Before the arrival of Bitcoin in 2009, there were several attempts to develop a type of digitized money backed by cryptography, but none of them took off. Bitcoin, the pioneer cryptocurrency, has been the best performing asset for seven out of the last ten years. However, it’s somewhat puzzling to see the relative scarcity of wealth advisors supporting investments in this asset class. In a survey of 500 financial advisors, a whopping 72% expressed a keen interest in investing more in Bitcoin and the broader cryptocurrency sector if a Bitcoin spot ETF was approved. Despite this, less than 9% felt confident in advising clients in this asset class, pointing towards a massive gap in understanding between traditional finance and this burgeoning monetary system.
Bitcoin’s fourth halving is just around the corner – set to occur around April 16, 2024. The halving is a process where the difficulty of mining the coin ramps up, and the reward decreases by 50%, ensuring a finite supply of this digital pseudo-gold. Satoshi Nakamoto, the mysterious developer who birthed Bitcoin, described the Bitcoin blockchain as a decentralized database, a distributed ledger comprised of a network of computers (nodes), which record transactions with Bitcoin.
But, Bitcoin has evolved from being a peer-to-peer electronic cash system to a type of store of value, displaying several traditional money attributes including durability, portability, divisibility, uniformity, scarcity, and acceptability. At heart, Bitcoin is a decentralized, trustless system with no single control point, thus making it a non-sovereign digital reserve currency.
It is worth mentioning also that Bitcoin may act as a precious hedge against government policy errors, especially during periods of increased fiscal and monetary interventions globally. In that sense, Bitcoin’s predictably finite supply suggests it could provide some buffer against inflation, negative interest rates, and other potentially detrimental policy consequences.
From a portfolio construction perspective, Bitcoin offers many benefits. Its historical returns have more than compensated for its notorious volatility, and it can also effectively diversify a well-balanced portfolio due to its low historical correlation to traditional assets.
But as promising as Bitcoin might appear, it’s not without its drawbacks. There are technical limitations due to its fixed supply, and frequent fluctuations in value can discourage potential users. Despite these drawbacks, Bitcoin is a ground-breaking creation that has the potential to redefine monetary systems, democratize value exchange, and eliminate middlemen in the financial industry.
There are certainly bullish cases to be made for Bitcoin, but bringing that digital wealth into the personal estate planning sphere poses challenges in the current pre-regulation world. This is an area where federal regulation is keenly awaited, and more clear guidelines could help cryptocurrency flourish further. With the world progressively moving towards digital and internet-native systems, it seems likely Bitcoin’s role and relevance will only continue to grow.
In conclusion, Bitcoin is much more than just a trend. It is a robust construct that provides a fresh perspective on financial platforms and has the potential to drastically reshape monetary transactions. As we become more digital, Bitcoin’s value may only increase, making it an intriguing asset to keep an eye on.
Source: Coindesk
