moment, everyone who owned bitcoin had made money from it. On March 5th the crypto token rose to an all-time high of just above $69,000—a level sure to delight the meme-loving crypto-crowd—before slipping back a little. The record capped a remarkable comeback from the dark days of November 2022, when interest-rate rises were crushing risk appetite and, a crypto exchange, had just gone bust. Buying bitcoin on such exchanges seemed like little more than a fun and novel way to get robbed.
Bitcoin is hardly rallying in isolation: everything is going up. Stockmarkets all over the world are near record highs. So are gold prices. Even bond prices are climbing after a miserable two-year stretch. The catalyst is a combination of hype about artificial intelligence, joy at the state of the global economy and expectations of looser monetary policy to come.Still, bitcoin is doing better than most assets.
It would be foolish to extrapolate from bitcoin’s entire history. Over the past 14 years the cryptocurrency has morphed from a niche cyberpunk idea into something approaching a mainstream financial asset. Its more recent price movements might provide some clues, however. There are two explanations for them. One is that purchases are basically a broad bet on technological progress, with variations that reflect prospects for crypto itself.
Perhaps both theories contain elements of truth. And a hybrid tech-stock-crypto-vibes-gold-bet asset could be useful in even pedestrian portfolios, especially if it is only somewhat correlated with other assets an investor might hold. Diversification among uncorrelated assets is the foundational principle of portfolio management. Reallocating, say, 1% of a fund to bitcoin would be a low-stakes hedge.
If investors buy this argument, bitcoin’s price is likely to rise for a while yet. What happens, then, when the cryptocurrency’s transition into a standard financial asset is complete? Assume that bitcoin has been added to most investor portfolios. Also assume that crypto tech does not really catch on. In this world, bitcoin’s returns probably do come to resemble those of gold: there is a fixed amount of it, and its price would rise over the long term roughly in line with the stock of money.
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