VanEck’s Top Three Reasons for Including Bitcoin (BTC) in an Investment Portfolio

Siamak Masnavi

Earlier this week, investment management company VanEck laid out the investment case for Bitcoin in a highly impressive 31-page presentation.

In a blog post published on October 8, VanEck focused on one part of this presentation: the three reasons for including Bitcoin in any investment portfolio.

VanEck's blog post starts by explaining the difference between two types of value:

  • intrinsic value: an asset has intrinsic value when it "produces cash flow or has overt utility"; examples are equities and real estate;
  • monetary value: this refers to the value an asset may have "beyond its intrinsic value"; examples of such assets are precious metals and artworks.

If we accept that Bitcoin is an asset that has monetary value, what are some good reasons for including it in an investment portfolio:

Bitcoin Has Very Low Correlation to Traditional Asset Classes

Bitcoin;s very low correlation to traditional asset classes such as "broad market equity indices, bonds and gold" could "potentially increase portfolio diversification."

VanEck - Low Correlation.png

Bitcoin Has an Asymmetric Return Profile

As the chart below shows, even allocating a very small percentage of an investment portfolio to Bitcoin can significantly enhance "the cumulative return of a 60% equity and 40% bonds portfolio allocation mix while only minimally impacting its volatility."

VanEck - Asymmetric Return.png

Bitcoin's Digital Scarcity Helps Its Value to Grow

VanEck defines "stock to flow ratio" as "the amount of an asset that is held in reserves divided by the amount of that asset produced for a selected time period." 

VanEck says that, based on historical data, Bitcoin's scarcity, as measure by its stock to flow ratio, has the potential to increase Bitcoin's value.

VanEck - Scarcity.png

VanEck goes on to say that Bitcoin's programmed "halvings" (i.e. the 50% reduction in block mining rewards, which occurs approximately every four years) "induce" scarcity, and that the Bitcoin price has "historically increased following halvings."

VanEck - Halvings.png

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