While Greenspring likes some alternative assets and has included them in our client portfolios over the years, we do not think Bitcoin merits a dedicated portion of an investment portfolio. Bitcoin is almost pure speculation with little intrinsic value. Unlike stocks and bonds, there are no profits, dividends or interest, and the price is based only on what a buyer is willing to pay.
Some call it “digital gold” and consider that to be a positive. However, we also believe that gold (like most commodities) is not a great investment. While some believe gold (and bitcoin) provide a strong inflation hedge, there is not nearly enough data to make that statement regarding bitcoin (it only launched in 2009), and stocks have been much better than gold in this regard.
There is obviously a lot of buzz about Bitcoin right now. That’s mostly because the price has gone up so much recently. You didn’t hear much about it in 2022 when it fell 65%! While not always true, typically the best time to buy is when there is no buzz (e.g., late 2018 or late 2022). As to what its underlying value is, that’s impossible to say of course, since there are no reliable metrics to value it by (like earnings, dividends, yield, etc.). For now, it’s simply worth what someone else is willing to pay for it. We’ve seen “experts” value it between $10,000 and $150,000.
All of the above said, there is certainly a possibility Bitcoin could be a home run and increase 10x. In this regard, we view it like any other single stock, commodity, or currency. Whether bitcoin, Tesla stock, AMC stock, or the ill-fated SPACs, it’s sometimes fun to own a small piece of something hot and trendy. So if you are going to own it, make it a very small position that you are willing to lose. Just make sure the rest of your portfolio is well diversified, follows evidence-based principles (e.g., full of index or index-like funds), and is positioned well to minimize taxes and costs.
