Bitcoin Isn’t Dead

Multiple obituaries have been written for Bitcoin over the years. Headlines such as “After the Bust, Are Bitcoins More Like Tulip Mania or the Internet?” are prevalent in the mainstream business press.

The reality, as bitcoin trades, once again, near the $10,000 mark, is more complicated. 10 years in, Bitcoin appears to be a volatile commodity with low correlation to other traditional assets.

This low correlation makes it appealing as an instrument to add diversification to financial portfolios, especially actively managed ones.

One argument for not including bitcoin in portfolios is that we don’t know the expected return of holding bitcoin. A 10 year history of massive appreciation is too short and also not necessarily a predictor of the future. Nevertheless, If bitcoin is a commodity similar in nature to gold, it’s long run expected return could be low, in line with inflation — but nevertheless, positive.

Regardless of one’s view of long term return prospects of investing in bitcoin, one thing is clear: it’s a real financial instrument, heavily traded OTC as well as on cryptocurrency exchanges.

I do not have a crystal ball and I have no idea where bitcoin price will end up many years from now. In my mind, decentralized tamper proof censorship resistant consensus has some value and the marketplace, via continuous trading, determines what that value is.