What does this mean for investors?
If bitcoin and cryptoasset markets get incrementally more stable over time, that on a standalone basis doesn’t all-of-a-sudden make bitcoin an attractive investment, right?
Then what does?
From an investment perspective, our Model Portfolio Solutions team appreciates several substantive arguments that support bitcoin’s long-term investment merit. Namely, to potentially serve as a novel store of value and global monetary alternative4, hedge to US dollar hegemony and political instability, and proxy play on the broader “offline” to “online” digital transition of goods and services – supercharged by “boomer-to-millennial” demographic tailwinds5. Collectively, these features may help provide unique and additive sources of risk premia and diversification to traditional multi-asset portfolios.
Tell me more…
Since its advent in 2009, the Bitcoin6 network has processed more than a billion transactions7 and survived numerous extinction-worthy industry cataclysms (various media outlets and other financial industry commentators have declared bitcoin “dead” several hundred times over the years8).
Despite this impressive resilience, bitcoin has often been met with confusion, skepticism. The bitcoin learning curve is steep, and the process of appreciation can take time.
In fact, something as simple as defining bitcoin can still be a messy exercise even today9. It doesn’t fit neatly into any single conventional paradigm.
At a minimum, we can say bitcoin is a digitally native, bearer asset10, equipped with cleverly embedded mechanics to communicate value across the internet in a way that is bankless, borderless, permissionless, cost-efficient, fast, and indiscriminate.
One might see how that is a compelling value proposition.
But there’s more. Bitcoin has a defined monetary policy engineered into its DNA (perhaps more relevant now in an era of growing sovereign deficits and profligate government spending) and is also uniquely inelastic to demand. Unlike gold, to which bitcoin is often compared, there’s no ability to meet excess demand with increased supply.
As many know, there is a predictable issuance schedule of new bitcoin until 2140 with a pre-programmed max supply of 21 million tokens11. However, less widely known is that the real available float is likely far smaller, with a conservative estimate of 3 to 4 million issued bitcoins visible on the blockchain but considered permanently inaccessible (and therefore out of circulation) due to lost, forgotten, or otherwise destroyed keys12.
To illustrate how few available bitcoins there are, if every millionaire in the US asked their financial advisor to get them 1 bitcoin, there wouldn’t be enough13.
Bitcoin’s decentralized network also makes it resilient to unauthorized third-party overreach, including corporate and government censorship. Such powerful features can of course be exploited for good and for ill – but as with all revolutionary technology, many are slowly (if even reluctantly) beginning to consider the possibility that the upside could outweigh the downside.
Conclusion
Critics’ go-to refrain is bitcoin has no intrinsic value. To the contrary, in our view, the discussed embedded characteristics represent fundamentally real and attractive sources of intrinsic value, which we expect will be recognized by more people in more places over time – particularly in a debt-laden, digital-first, and increasingly AI-entrenched world.
The iShares Bitcoin Trust ETF is not an investment company registered under the Investment Company Act of 1940, and therefore is not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940.
