Is it time to include Bitcoin in your investment portfolio?

Confidence is more important than gold, but will Bitcoin be 'digital gold'?Wen/Ba Jiuling (WeChat official account: Wu Xiaobo channel)Yesterday, I was afraid it was another day when some investors were pounding their chests.On June 5, 2023, the Nikkei Index reached a new high since July 1990, surpassing 32000 points for the first time

Confidence is more important than gold, but will Bitcoin be 'digital gold'?

Wen/Ba Jiuling (WeChat official account: Wu Xiaobo channel)

Yesterday, I was afraid it was another day when some investors were pounding their chests.

On June 5, 2023, the Nikkei Index reached a new high since July 1990, surpassing 32000 points for the first time.

Let's take a look at the picture. Isn't it just a matter of stepping on the gas pedal from the peak 33 years ago?

According to statistics, the Nikkei 225 index has accumulated an increase of 23.46% this year.

There are still some pictures that seem to be ready for launch, such as spot gold.

Oh, there's another one that may have been ostracized by many people - Bitcoin.

The chart may not seem as exciting as the first two, but by pressing the calculator, as of June 5, 2023, Bitcoin's cumulative increase in 2023 has reached 60.6%, making it the most exciting one.

The investment community has reached a consensus in recent years:Putting aside Bitcoin's political aspirations back then, its role now being mentioned more frequently is digital gold.

People often say that 'confidence is more important than gold', and gold has always been an important safe haven asset, at least a very important anchor. However, many people may still question whether Bitcoin is such an anchor.

But guess what the analyst said?

According to analysts at Lianbo,Bitcoin is a barrier against the adverse consequences of economic turmoil and excessive monetary and fiscal intervention.

Goldman Sachs predicts that if investors accept Bitcoin as a "digital gold" use, Bitcoin may eventually reach $100000.

As for the perception that the risk of fluctuations in Bitcoin is too high (such as a 50% discount), there is a calculation that is also encouraging:

According to Morningstar Inc.'s calculation, in the traditional 60/40 portfolio (that is, the S&P 500 index stocks account for 60% and the 10-year U.S. treasury bond bonds account for 40%), the return of investors with 1% Bitcoin will be slightly lower in the past year - down 8.93%, while the traditional 60/40 portfolio will decline 8.77%.

Considering that Bitcoin plummeted by nearly 40% during that period, these numbers are not scary.

In the longer term, a 1% allocation of Bitcoin will significantly increase returns. In the 10 years ended March of this year, 1% of Bitcoin portfolios easily defeated traditional 60/40 portfolios -13.3% to 7.8% per year.

The slightly larger 2% configuration has performed slightly poorly in the past year (down by about 9%), but has grown by nearly 18% annually over the 10-year period.

Another point worth adding is that the majority of Bitcoin traders are young people.

Taking South Korea as an example, there have been media reports that the population aged 20-39 in South Korea is about 13.421 million, while the number of people holding virtual currency is 3.08 million, accounting for 23%. That is, one out of five young Korean people is speculating on currency.

According to data from Bitcoin real-time trading software Paxful in 2021, the main group using them is between the ages of 25 and 33, accounting for 32.76% of all traffic, with people aged 18 to 24 accounting for 32.21% of all traffic.

In the future, they will be an important investment force, which also means that Bitcoin's future will not be just an option for "niche investments".

So, is it time to include Bitcoin in your investment portfolio?

Don't worry, let's take a look at the opinions of several experts and scholars together.

Gold is a natural currency and a valuable asset, while Bitcoin is a virtual electronic currency. Young investors may prefer Bitcoin, but Bitcoin is prone to causing large-scale market fluctuations, and most sovereign countries do not recognize its legal status. Therefore, Bitcoin's existence often has some dark side and can easily become a disaster zone for money laundering.

I personally believe that gold must be allocated, but there is no need to necessarily allocate Bitcoin.

We see that central banks of all countries are crazy about buying gold, which is a frightening amount. In the first quarter of this year, the global central bank Gold reserve increased by 228 tons, the highest increase in reserves in the first quarter of every year since records began.

We can use whale swallowing to describe the state of central bank reserves of gold in various countries. Central banks around the world continue to hoard gold to resist risks. As the saying goes, buying gold in times of chaos and making antiques in times of prosperity. Now the price of antiques has plummeted, but gold has gradually become the main type of central bank reserves, which is more the result of the Russia-Ukraine conflict.

Russia's various foreign exchange reserves have encountered unprecedented pressure and bottlenecks. So this event suddenly made many countries think that Gold reserve are becoming more and more important. Everyone is afraid of foreign exchange reserves being suppressed, and buying gold as a strong support for national currency preservation.

The latest news is that accelerating "de dollarization" has slowly begun in many countries. I believe that in the trend of de dollarization, countries will inevitably choose to hoard gold as a safeguard against some risks.

In fact, it is still related to the US being too domineering, and other countries dare not speak up about the US dollar's hegemony.But wherever there is monetary oppression, there is resistance, and there is already a slight trend towards this.

It should be said that abusing the hegemony of the US dollar will first drive the BRICS countries to work together to create a new world currency. The Asian Clearing Union (ACU), composed of nine Asian countries including Iran, India, and Bangladesh, will launch a new cross-border financial settlement system in June this year, with the aim of replacing the SWIFT system.

51st Asian Clearing Union (ACU) Summit Source: Asia Preface

Of course, China did not participate this time because it had already been secretly preparing to replace the US dollar, mainly because the hegemonic behavior of the United States stimulated dissatisfaction in many countries and hindered the circulation and use of currencies in many countries. This is the fundamental reason for the formation of such an anti US dollar alliance.

In fact, ACU was established in 1974, but in recent years, the relevant government has not continued the past policies. However, this hidden resistance has always existed, lacking a single spark to ignite the prairie fire.

I believe that at the same time as the launch of the Asian Clearing Union, there will be budding "de dollarization".

In the process of transferring debt risks to other countries, many countries such as India and Japan have experienced economic setbacks for decades. So in order to avoid this situation, more and more economies are putting "de dollarization" on their agenda and making plans.

The trend of Bitcoin is closely related to such factors as the global economic cycle, the cycle of the US dollar, and the attitude of monetary authorities of major countries towards Cryptocurrency.

The highest point of Bitcoin has exceeded $60000. After the outbreak of the epidemic and the release of the US dollar, the M2, the Broad money of the US dollar, once grew by 25%, which is an important reason why Bitcoin hit a new record.

Later, the US dollar entered a cycle of rapid interest rate increase and scale contraction, and the Bitcoin foam burst, once falling to around 16000 dollars. Recently, Bitcoin has rebounded to around $27000, which is closely related to the end of the US dollar interest rate hike and the widespread rebound in global stock markets.

Gold and Bitcoin are similar, both safe haven assets, and both follow the opposite trend of the US dollar.

But gold and Bitcoin form a competitive relationship, and without gold, Bitcoin prices would perform better; Conversely, without Bitcoin, the price of gold will be higher. The emergence of Cryptocurrency such as Bitcoin has diverted the hedging function of gold and curbed the height of gold prices.

Ordinary people do need to pay attention to the price trends of gold and cryptocurrencies.Physical gold and Cryptocurrency provide an important way to avoid taxes and transfer assets.

Central banks around the world are also seeing the end of the US dollar interest rate hike when buying gold, indicating a possible rebound in gold. But in April, the amount of gold purchased by the People's Bank of China significantly decreased, and it may gradually suspend gold purchases in the next two months (May or June).

The long arm jurisdiction and financial bullying behavior of the United States have led many countries to hope for "de dollarization", and there have been many cases this year. But this is a long process that requires years of effort. China increased its holdings of US bonds in March, ending its seven consecutive months of holdings reduction, indicating that "de dollarization" is both repetitive and difficult.

For most investors, the biggest enemy in the long-term investment process is excessive volatility. I think ordinary investors should have a very core logic calledPersist in high probability events and prepare for low probability events.

What is the probability of an event? The entire world is still on the path of peace and development, so in this direction, it is actually based on traditional asset allocation in the past, such as the stock market and bond market, which are still worthy of consideration. This is also the mainstream investment direction for most Chinese people.

Small probability events are similar to situations like the Russia-Ukraine conflict. In order to prevent small probability events from having a significant impact on family assets and make our family portfolio more anti fragile, we should properly allocate risk averse assets.

For investors with a certain amount of funds, gold can be added to their asset allocation portfolio because there is a significant non correlation between gold and the stock market and bonds, providing better stability and smooth volatility for the entire family's asset portfolio. Within the range of risk tolerance, consider some digital assets. The East is not bright, and the West is bright. Use diversified and dispersed combinations to reduce volatility.

Some people call Bitcoin digital gold, but it should be noted that assets like Bitcoin have high volatility and many speculators. For individual investors, it is important to keep their eyes open, have sufficient awareness and understanding of risks, and not invest too much in them.

In the past, individual investors may only focus on single asset classes, for example, most people in China only focused on real estate, while most Americans would allocate to markets like the S&P 500.

In the future, asset allocation is a very important means for ordinary people to achieve long-term wealth appreciation. The core idea is to allocate your assets among different categories, and the long-term return rate is also good.

Central banks of various countries purchase gold, in the short term, primarily for the purpose of fiscal stability, to ensure the health of their balance sheets; In the long run, the world's trust in the US dollar has declined in the past decade. In the past, people believed that the US dollar was equal to gold, which was a global consensus after the disintegration of the Bretton Woods system.

However, this consensus is not as strong anymore, so people need to be more stable in terms of preserving value, stabilizing the finances and currencies of various countries, and gold is currently the most mainstream choice.

From a long-term perspective of ten to twenty years, 'de dollarization' is a definite trend.Because the entire world will develop towards multipolarity, there will be various forms of currencies competing for the position of global value storage.

In the short term, due to various forms of instability in the past year or two, the phenomenon of "de dollarization" has actually become less severe. Because in this situation, many people will believe in the US dollar because they have no other choice. So I think the Long run and short run and short-term "de dollarization" phenomenon has a different trend.

The global economic downturn is basically a foregone conclusion. If we want to recover, I think we need to look at three aspects.

Overall, in the process of global economic turmoil, buying gold during times of turmoil can serve as a hedge.

And now Bitcoin is also known as digital gold, so after binding the concept of gold, it can also serve as one of the ways to preserve value in times of chaos.

But physical gold and Bitcoin, after all, are not currencies and have the characteristics of being inconvenient to trade and realize. Therefore, when investors buy gold or Bitcoin, they should fully consider the issue of liquidity.

The excessive issuance of the US dollar makes it possible for the US dollar to depreciate and become worthless waste paper.

Central banks around the world, which used to use the US dollar as their main reserve currency, have shaken their confidence. Especially after the epidemic, the debt crisis has turned Bank failure from fear into reality, so the central banks of all countries use gold as a reserve and regard it as a safe haven asset.

Countries generally have a desire to "de dollarize", but their strength is not enough and it will take a relatively long time.

We also need to 'de dollarize', but we still can't handle the US dollar now. At this time, we need to hide our strength and strengthen China's strength.

Strategically speaking, we need to 'de dollarize', but tactically speaking, we cannot go too far.

The entry point for "de dollarization" is the trading of commodities, and how to make new trading mechanisms, especially monetary mechanisms, no longer anchor the US dollar is the key.

But it is currently difficult to find such a cracking mechanism. Bitcoin can accelerate the process of 'de dollarization', but the total amount is only 21 million, and its impact is very limited.

The author of this article|Wu Runqian |Mei Haoyu| |Wu Yueyue

|He Mengfei | |VCG