Buying bitcoin was once taboo. Critics called it a fraud and a scam. Warren Buffett even went so far as to call it “rat poison squared” back in 2018.
Yet people’s views toward cryptocurrency are changing. Some of the best and most respected investors in the world are now buying large amounts of bitcoin. And some have signaled that they intend to buy even more in the coming year.
The inflation hedge
Famed macroeconomic investor Paul Tudor Jones purchased bitcoin in May as a means to protect his portfolio from the negative effects of inflation. Jones expects the massive stimulus measures enacted to mitigate the carnage wrought by COVID-19 to eventually cause a steep rise in the prices of goods and services. “We are witnessing the Great Monetary Inflation — an unprecedented expansion of every form of money unlike anything the developed world has ever seen,” Jones said.
To hedge his portfolio against the negative impact of this central-bank-induced inflation, Jones evaluated multiple types of potential investments, including gold, commodities, and stocks. Yet Jones believes bitcoin is the best option. He sees the cryptocurrency increasingly becoming a store of value, due in part to its advantages over gold. Bitcoin is easier to store and transfer than the precious metal. It’s also more divisible.
Moreover, Jones argues that the trend away from cash and toward digital transactions favors bitcoin. “The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by COVID-19,” Jones said.
Betting against the dollar
In November, billionaire hedge fund manager Stanley Druckenmiller announced that he, too, owned bitcoin. Like Jones, Druckenmiller views bitcoin as a means to profit as the dollar declines in value.
Although he’s bullish on gold and owns much more of the precious metal than he does cryptocurrency, Druckenmiller expects bitcoin to generate superior returns. “Frankly, if the gold bet works, the bitcoin bet will probably work better because it’s thinner, more illiquid, and has a lot more beta to it,” he said. Beta is essentially a measure of volatility.
Additionally, like Jones, Druckenmiller sees bitcoin being used as a store of value, particularly by millennial investors.
The treasury reserve asset
Despite their bullishness, Jones’ and Druckenmiller’s bitcoin bets pale in comparison to that of MicroStrategy (NASDAQ:MSTR). The business intelligence company has invested more than $1.1 billion in bitcoin. It owns over 70,000 coins, a stake currently valued at more than $2.3 billion. MicroStrategy had announced in August that it was adopting bitcoin as its “primary treasury reserve asset.”
“Our investment in Bitcoin is…
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