After Bitcoin's 113% Increase, Why Are Billionaires Suddenly Hoarding Bitcoin?

Billionaires have been hoarding Bitcoin (BTC) in recent months, with hedge fund manager Stanley Druckenmiller becoming the latest billionaire to publicly disclose his Bitcoin investments, following Paul Tudor Jones.

Bitcoin performance since 2015. Source: TradingView.com

Bitcoin is becoming increasingly attractive to high net worth investors for four main reasons: portfolio diversification, inflation hedge tool, gold alternative, and great risk-reward ratio.

Investors increasingly view Bitcoin as ‘Gold 2.0’

Gold is an important means of storing value and a safe-haven asset for institutional investors. It can hedge against inflation and potential market downside risks.

Investors view gold more as a means of insurance to protect their portfolios from market corrections and macroeconomic uncertainties. Therefore, safe-haven assets generally do not have huge returns in the short to medium term.

Bitcoin has the potential to achieve both of these goals at the same time as it evolves into a safe haven asset with huge growth potential.

Gold’s market capitalization is estimated to be around $9 trillion. In comparison, Bitcoin’s market capitalization is $285 billion, a significant difference between the two assets.

In a Nov. 9 interview with CNBC, Druckenmiller stressed that Bitcoin’s reputation as a store of value will only improve over time. He said:

“Bitcoin as a store of value asset class has a lot of appeal to millennials and new West Coast investors, and they hold a lot of it. As an asset that’s almost 13 years old, Bitcoin is becoming more and more established.”

Great risk-reward ratio

During the interview, Druckenmiller noted that he owns “many, many times more Bitcoin than gold.” But the billionaire investor stressed that if gold prices rise, Bitcoin will also rise significantly and “will probably outperform gold.”

The investor said that Bitcoin is "scarier" and "less liquid" than gold, so even if Bitcoin accounts for a smaller proportion of a portfolio than gold, it still has greater upside potential.

Bitcoin also cuts its block reward in half every four years. Since the fixed supply of Bitcoin is 21 million, the number of Bitcoins mined daily decreases by 50% after each halving.

If the supply of Bitcoin decreases but demand increases, it could create a supply crunch in the long term, leading to higher prices.

Inflation Hedging Tools

The price of Bitcoin generally moves inversely to the U.S. dollar index. Like gold, when the dollar depreciates, Bitcoin tends to appreciate.

Negative correlation between Bitcoin and the US dollar index. Source: TradingView.com

In the long run, investors including Tudor Jones believe that Bitcoin is an ideal inflation hedge. Especially after the Federal Reserve adopted an average 2% inflation target strategy, Bitcoin has become more attractive to institutions seeking inflation hedges.

Portfolio Diversification

Bitcoin doesn’t have to be a single asset. Historically, it has performed well as a portfolio asset, delivering significant gains to a balanced stock portfolio. Last month, Dan Tapiero, co-founder of 10T Holdings, wrote:

“Over the past 5 years, just a 3% BTC position would have increased the return of a 60/40 portfolio from 6.8% to 10.2%.”

Bitcoin portfolio performance Source: Bloomberg, Yahoo Finance, Fidelity Digital Assets, Dan Tapiero

The above four factors make Bitcoin an increasingly attractive portfolio asset for fund managers.

Raoul Pal, CEO of Real Vision Group, further noted that investors like Druckenmiller who are bullish on Bitcoin should not be underestimated at this potentially turning point. He said:

The world’s largest fund manager, Stan Druckenmiller, just said he’s bullish on Bitcoin, and that speaks volumes. This removes all barriers to any hedge fund or savings insurance investment.”