Crypto enthusiasts argue that digital assets help investors defend against inflation. They claim digital assets provide a safe haven to protect assets and wealth.
And Bitcoin is meeting the challenge, proving to be a viable alternative asset for investors and big names looking to stay safe in times of economic uncertainty.
Exposure is Low, But The Numbers Are Large
With inflation fears growing over the past few months, more and more billionaires are turning to Bitcoin. The number of billionaire investors who bought Bitcoin surged significantly last year, some previously anti-crypto names even making the list.
A perfect example is Ray Dalio - billionaire founder and investment chief at Bridgewater Associates. Dalio is known for his work on demystifying the economic machine and turning Bridgewater into the world's biggest hedge fund with over $150 billion in assets under management. And for a long time, he was vocally anti-crypto.
In November 2020, Dalio tweeted he didn't think Bitcoin was a stable currency due to its volatility. The billionaire added that Bitcoin investing was iffy since governments could easily ban the asset and leave investors out in the cold.
But things turned around for Dalio last year. He became a huge Bitcoin fan, urging people to invest in the asset, that it had proven resilient. In an interview with Yahoo! Finance, Dalio emphasized that Bitcoin has survived over a decade without being hacked.
"I think it's impressive that for the last 10–11 years, that programming has held up. It hasn't been hacked, and it has an adoption rate," the billionaire said, adding that he personally owned Bitcoin and Ether. He didn't mention how much he owned, but claimed he was using them to balance his portfolio.
Dalio has preached the benefits of portfolio diversification for the past two years. He dubbed cash the "worst investment" for anyone and believes crypto offers quality diversification.
Bitcoin Helps With Diversification
Another example is Thomas Peterffy - the Hungarian-born billionaire who runs the brokerage firm Interactive Brokers Group Inc. With a net worth of $25 billion, Peterffy recently told Bloomberg that investors should hold between 2 and 3 percent of their portfolios in crypto, just in case cash doesn't hold up.
Like Dalio, Peterffy holds crypto himself. He said digital assets offer investors extraordinary returns, though he has no predictions on market direction. In mid-2020, his company announced it would offer crypto trading to clients in response to demand for the assets.
Currently, Interactive Brokers Group offers trading in Bitcoin, Ether, Litecoin, and Bitcoin Cash. The company plans to expand its crypto offering this year.
Inflation Fears Are Real
The United States is seeing a surge in inflationary fears stemming from the economic fallout behind the coronavirus pandemic. Many countries doled out large stimulus packages to help citizens stay financially afloat.
While the stimulus packages meant well, they sparked inflation fears. The United States currently holds an inflation rate of 7 percent, the highest in about 40 years. The country's Consumer Price Index has surged significantly. Prices of daily goods have skyrocketed.
Inflation fears and uncertainty over how the Federal Reserve will handle it have left billionaires scrambling for a solution. They're turning to Bitcoin. The asset delivered significant returns in 2020, and they're hoping to see it continue.
Hedge fund manager Paul Tudor Jones gave the perfect description when he decided to buy Bitcoin last year. In May, Bloomberg reported that Tudor BVI - a hedge fund operated by Jones' holding company Tudor Investment Corporation - held a "low single-digit percentage" of its total assets in Bitcoin futures.
Jones explained to Bloomberg that Bitcoin plays the same role gold played back in the 1970s. In the 70s, economic challenges forced investors to seek out safe havens. Many went with gold. Now, Bitcoin is the go-to.
"The best profit-maximizing strategy is to own the fastest horse [...] If I am forced to forecast, my bet is it will be Bitcoin," Jones said.