Despite its 80 percent drop from its all-time high in 2018, bitcoin has performed strongly in recent months, demonstrating newly gained momentum.
In early 2017, bitcoin was valued at less than $1,000. Since 2017, bitcoin is up around 400 percent in about two and a half years.
Does Bitcoin Make a Good Alternative Investment?
Last month, in a column entitled “The case for a small allocation to bitcoin,” Xapo CEO Wences Casares said that a $10 million portfolio should invest up to 1 percent in bitcoin, about $100,000 because it has a chance to bring a large return over the long run.
I suggest that a $10 million portfolio should invest at most $100,000 in Bitcoin (up to 1% but not more as the risk of losing this investment is high). If Bitcoin fails, this portfolio will lose at most $100,000 or 1% of its value over 3 to 5 years, which most portfolios can bear. But if Bitcoin succeeds, in 7 to 10 years those $100,000 may be worth more than $25 million, more than twice the value of the entire initial portfolio.
Although the performance of bitcoin throughout the past several years has been overshadowed by the unexpected bull run in 2017 that briefly led the dominant cryptocurrency to achieve a price of $20,000, in a larger time frame, bitcoin has performed relatively well against many asset classes.
Bitcoin along with the rest of the cryptocurrency market is currently at an early stage in terms of adoption. The signs of an inflow of institutional capital only started to show in 2018 through investment firms like Grayscale.
Major financial institutions such as Fidelity and ICE have only begun to commit to the cryptocurrency market in early 2019, considering the launch of various custodial solutions.
Performance of top 10 cryptocurrencies (source: OnChainFX)
Investors and entrepreneurs like Casares note that there still remains a small chance of bitcoin and cryptocurrencies in general failing. But, if investors see a slight chance of bitcoin surviving as it has done in the past ten years, it presents a long-term investment opportunity.
As the New York Stock Exchange (NYSE) chairman Jeff Sprecher said:
Somehow bitcoin has lived in a swamp and survived. There are thousands of other tokens that you could argue are better but yet bitcoin continues to survive, thrive and attract attention.
The Industry is Going Towards the Right Direction
A positive indicator in the long-term survivability of bitcoin and the cryptocurrency industry is the direction which leading companies have started to take.
With the lead of Bitwise, Gemini, Coinbase, and other compliance-focused companies, the cryptocurrency industry has tacked key issues such as fake volume, regulatory uncertainty, and investor protection.
Gemini, for instance, obtained insurance services from Aon in October 2018 to better protect user funds in a highly unlikely event of a security breach.
“Educating our insurers not only allows us to provide such protections to our customers, but it also sets the expectation for consumer protection across the crypto industry,” Yusuf Hussain, Gemini’s Head of Risk, said at the time.
How the Near-Term Performance of Bitcoin May Look Like
In the short-term, some traders lean toward a positive price trend for bitcoin due to the clean break out of important resistance levels at $4,200 and above.
But, the unforeseen drop in the 8 percent drop in the bitcoin price from $5,400 to $5,000 has led technical analysts to reconsider the outlook of the asset.