• ETF Insights

    How to Unlock Bitcoin’s Misfortunate Millionaires

    Martijn Rozemuller, CEO – Europe
     

    Besides Bill Gates and a few other IT entrepreneurs there probably aren’t many computer programmers worth hundreds of millions of euros. I read in my newspaper about one: Stefan Thomas, a German programmer living in San Francisco. He has a hard drive with bitcoins worth over 180 million euros. But he has a problem: he’s forgotten the password and so can’t access his fortune.

    After bitcoin’s price more than tripled in 2020, going on to fresh highs in January 2021, the stories of lost bitcoin millionaires like Thomas are making the newspapers. At those moments it is easy to forget that, due to bitcoin’s volatility, for every bitcoin millionaire there are numerous investors who lost money on their crypto investments. Bitcoin is an asset class with which you may lose the full amount of capital invested. Many of today’s bitcoin millionaires are early, speculative adopters. More recently, though, bitcoin has gained popularity with cautious investors seeing it as a digital gold – a digital store of value in an age of uncertainty.

    Witness MicroStrategy, a US public company, that invested its entire corporate treasury in bitcoin last summer. Then, in October, PayPal opened up its platform for buying and selling.

    Keen to give investors a regulated chance to access bitcoin, VanEck launched a bitcoin strategy in November, trading on the regulated part of Deutsche Boerse Xetra. One of the first collateralized bitcoin strategies, this is an important stepping stone in the cryptocurrency’s development.

    Why scarcity matters

    2020’s events build on those from Bitcoin’s launch in 2009, suggesting that it is increasingly viewed as a long-term store of value. While its scale remains relatively small, with a total market cap at around USD 540 billion (as of 31/12/2020), bitcoin’s capitalization has grown in comparison to gold’s.

    Above all, investors value bitcoin for its scarcity. It will be issued in decreasing amounts until the supply reaches 21 million, at which point issuance stops. Similar to gold, this is an esteemed quality when central banks are printing money at unprecedented rates as they seek to support locked down economies.

    Scarcity has driven bitcoin’s extraordinary price rise, but its role in an investment portfolio also arises from the fact its price tends to move independently of equities and bonds. This means a small allocation to bitcoin could potentially improve the long-term risk-adjusted return of a diversified portfolio, typically holding 60% equities and 40% bonds. Moving 3% into bitcoin would result in an allocation of 58.5% equity, 38.5% bonds and 3% bitcoin. Over the period from the beginning of 2012 to the end of 2020, its annualized return would have been 15.7%, which compares with 10.4% for the standard 60/40 equity/bond portfolio (see illustration). Be aware that these are historical numbers and therefore not a reliable indicator for future results.

    Also note that we are only referring to a small allocation of a broadly diversified portfolio – bitcoin is highly volatile, so it’s best to be prudent. Diversification does not ensure a profit or protect against a loss in a declining market.

    Adding bitcoin can enhance a portfolio’s return / risk profile

    dding bitcoin can enhance a portfolios return / risk profile

    Source: VanEck. Data for the period 31/1/2012 – 31/12/2020. Past performance is no reliable indicator for future performance.

    A personal disclosure

    In the spirit of full disclosure, I should admit that I was a bitcoin sceptic but have been converted in the past two years.

    It’s hard not to feel sorry for bitcoin’s lost millionaires, but if they do find their keys they might want to sell the bitcoin and reinvest in our strategy. That way they can move from being theoretical digital millionaires to the real thing, locking in their huge gains in a way that is safe and transparent, if a little less exciting than the crypto-currency’s cypher punk roots!


    Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH, Kreuznacher Strasse 30, 60486 Frankfurt am Main. It is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. Views and opinions expressed are current as of the date of this information and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. VanEck makes no representation or warranty, express or implied regarding the advisability of investing in securities or digital assets generally.

    Investing is subject to risk, including the possible loss of principal up to the entire invested amount.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    Investments into any digital asset products bear the risk of loss up to the total loss.

    © VanEck (Europe) GmbH.

     


  • Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

    All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    © VanEck (Europe) GmbH