One of the most profitable areas for investors in 2020 was Bitcoin. Bitcoin started at just under $ 7,500 and ended above $ 29,000. However, it is difficult to think of other assets that would cause such a fierce debate.
Bitcoin is the oldest cryptocurrency in the world, and the rationale behind it is White paper Published in 2008 by the founder of the pseudonym, Satoshi Nakamoto.The treatise states that it acts as a proof-of-concept technique and needs to function as follows: “Pure peer-to-peer version of electronic cache.”
Crypto is designed to act as a decentralized payment system that allows people to transfer value without the need for financial intermediaries such as banks. Unlike regular paper currencies, the money supply is unaffected by government agencies. This means that government agencies cannot devalue it at will.
For this reason, some argue that Bitcoin is a digital version of gold and works as authorities continue to tighten its money printing policy. Theoretically, there is a supply cap of 21 million, from which value comes from, but there is a lot of variability because there is no underlying fundamentals and it is worth paying for someone else.
Not only does Bitcoin have many strong supporters, but many believe it to be a speculative bubble. Regardless of which camp you attend, the last such price increase in 2017 was close to $ 20,000, and it’s worth remembering that you’ll lose 80% of that value the following year.
And one of the first mainstream funds to buy is £ 475m Ruffer Investment Company (LON: RICA)After making some profit with gold using Bitcoin, diversified part of its portfolio to hedge broader market risk.
They explained the 2.5% quota announced in November as follows: ‘Small but strong insurance policy against the ongoing devaluation of the world’s major currencies. Bitcoin diversifies the company’s (much larger) investment in gold and inflation-indexed bonds and acts as a hedge against some of the financial and market risks we see.
RICA’s Bitcoin is held in an account separated by the world’s largest digital asset manager, secure, offline and refrigerated, and is covered by industry-leading insurance policies. We expect managers to rebalance their holdings on a regular basis to ensure that the fund continues to provide downside protection without being exposed to unnecessary levels of volatility.
Buy or not buy, that’s the problem
Bitcoin proponents believe that in the near future there will be a financial barrier for institutional investors to make prices much higher, but there are many risks for individual investors. If it turns out to be a bubble, you can easily lose most of your money, and cryptography is a notorious area of fraud and theft, even if it lasts higher.
Finding a regulated alternative is not easy, as the Financial Services Authority has banned the sale of cryptocurrencies ETPs and ETFs in the UK since January 10. This means that you have to buy Bitcoin directly or spread bet on the price and accept the higher risk of trading on margin.
VanEck recently submitted a Bitcoin ETF approval application to the US Securities and Exchange Commission, but all previous proposals have been rejected, which will probably follow the same fate. The reasons cited in the past were that the market was neither large nor liquid enough to prepare for exchange-traded funds.
I’m a long-term holder of RICA and can guarantee the ability to provide effective downside protection in any way in a harsh market environment, but Bitcoin is in a bubble and touches with a barge pole I personally think that there is no such thing.
Bitcoin: Should you or shouldn’t?
https://masterinvestor.co.uk/funds-and-investment-trusts/bitcoin-should-you-or-shouldnt-you/ Bitcoin: Should you or shouldn’t?