Until recently, billionaire investors seemed to have little or no interest in buying Bitcoin (CRYPTO: BTC)But that looks to be changing in 2024. Half of the top 20 billionaire hedge fund managers now own bitcoin. And, in some cases, they are selling it. Nvidia to buy this trendy cryptocurrency for their wallets.
Of course, there are several factors at play. You can’t sell a super-performing stock like Nvidia for no reason. Let’s take a closer look at why billionaires are turning to Bitcoin.
Bitcoin ETF
The real turning point for Bitcoin ownership appears to have been the launch of the new Bitcoin spot ETFs in January. Suddenly, billionaire investors had an easy and convenient way to invest in Bitcoin that didn’t require them to directly enter the cryptocurrency market. According to the latest 13F documents filed with the SEC, it’s possible to see how much money has flowed into Bitcoin over the past eight months, and frankly, the numbers are staggering.
According to the latest figures from CoinShares, almost $20 billion has flowed into Bitcoin since the beginning of the year, a figure that far exceeds that of any other cryptocurrency, and that is thanks to new Bitcoin ETFs. In fact, hedge funds have become some of the largest buyers of these ETFs.
At the same time that billionaires are buying bitcoin, they are dumping some of their Nvidia holdings. For example, earlier this summer, two high-profile billionaire hedge fund managers – David Shaw of DE Shaw and Steven Cohen of Point72 Asset Management – sold Nvidia stock and reallocated that money to the cryptocurrency. iShares Bitcoin Trust (NASDAQ: IBIT)which has become the most popular of the new Bitcoin spot ETFs.
Bitcoin’s bullish potential
It’s certainly understandable why so much money has flowed into Bitcoin this year. The digital asset is up 40% year-to-date and hit a new all-time high of $73,750 in March.
That’s impressive, but Nvidia is up 132% this year, an even more impressive level. And if you zoom out and look at Nvidia’s performance over the past two years, it’s astonishing. If ever there was a stock that went truly parabolic, it was Nvidia.
Billionaires are supposed to be the “smart money,” so why would they sell an asset that has seen a parabolic rise and reallocate that money elsewhere? It may seem obvious, but it has to do with Bitcoin’s upside potential.
Bitcoin arguably has even greater upside potential than Nvidia over the next two decades. In fact, Michael Saylor of Microstrategy has suggested that Bitcoin could be worth as much as $49 million per coin by 2045. That represents a potential return on investment of almost 83,000%!
Bitcoin as an independent asset class
Another factor in Bitcoin’s favor is the growing awareness on Wall Street that cryptocurrencies are a standalone asset class, with their own unique risk-reward profile. That has enormous importance from a portfolio diversification perspective. So, just as a savvy billionaire investor might allocate a certain percentage of a portfolio to traditional asset classes (like stocks or bonds), there is now a perceived need to allocate at least a small portion of that portfolio to cryptocurrencies as well.
The big question, of course, is how big that allocation will be. For now, it seems that most billionaire hedge fund investors are choosing to allocate between 0.2% and 1% of their portfolios to Bitcoin. So, it’s not like they’re jumping headfirst into the cryptocurrency market just yet.
But 1% of a $100 million portfolio is $1 million, so there’s a lot of money at stake. And that 1% allocation is sure to become much larger over time. For example, Ark Invest’s Cathie Wood suggests the optimal portfolio allocation to Bitcoin could be as high as 19.4%.
Bitcoin Risk-Adjusted Performance
Both Bitcoin and Nvidia are high-risk, high-growth investment opportunities. Instead of focusing solely on absolute returns, a better approach might be to focus on risk-adjusted returns.
The most popular way to measure risk-adjusted returns is through the Sharpe ratio, which takes into account the volatility of the asset being analyzed. Generally speaking, the higher the Sharpe ratio, the more attractive the investment.
And that’s what makes Bitcoin such a remarkable investment. Over the past decade, Bitcoin has had a higher Sharpe ratio than any other asset class, including tech stocks. Simply put, Bitcoin is incredibly risky and volatile, but, man, do you get paid a lot for taking on all that excessive risk!
Bitcoin for the long term
Billionaire investors consider much more than past performance. They think about upside potential, the overall diversification of their portfolio, and the total amount of risk involved. And that’s what makes Bitcoin such an attractive long-term investment opportunity. It may be a high-risk, speculative investment, but it has the potential to deliver unmatched returns over the long term.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in Bitcoin and Nvidia and recommends them. The Motley Fool has a disclosure policy.
Billionaires Are Selling Nvidia Stock and Buying This Booming Cryptocurrency. It was originally published by The Motley Fool