How to include cryptocurrency in your investment portfolio

According to James Mackreides, a recent listing demonstrates how bitcoin could increase the value of a portfolio if it continues to gain traction

Cryptocurrency is not a part of our strategic portfolio, in part because we have not yet come to terms with the idea that it is a fundamental asset. The concept of a currency that is independent of the government is clearly appealing. However, compared to current payment networks, the two most popular cryptocurrencies, ether and bitcoin, have serious transactional drawbacks. Given the increasing long-term risks of currency depreciation, the necessity for a stable store of value is clear. However, gold still appears to be a better option in practically every aspect. Because of all of this, it is challenging to determine whether cryptocurrencies are the pinnacle of our bubble-prone era or a true revolution with increasingly common applications.

Nevertheless, the way that bitcoin has increased over the last ten years cannot be disregarded. Indeed, a lot of this happened in the context of extremely low interest rates, which led to numerous bubbles. More recently, for similarly speculative reasons, the Trump administration's pro-crypto stance gave it an additional boost. To the extent that the US government has a coherent policy, it is to promote stablecoinsdigital currencies backed by assets like government bondsin an effort to solidify the dollar's hegemony and offer a consistent source of demand for the enormous quantity of US Treasury bonds it is issuing. This is not at all like supporting ether and bitcoin. ().

Nevertheless, if cryptocurrency is just a bubble, it is a strong onebitcoin has recovered from several significant sell-offs. The likelihood that ether and bitcoin will become more widely used increases with the amount of time that passes. When new standards are put to the test to see if they work, people are more likely to adopt them.

Investors in the UK can now purchase cryptocurrency ETFs.

The fact that private investors in the UK were unable to purchase regulated cryptocurrency exchange-traded products until late last year is another reason we haven't used cryptocurrencies. Since it encouraged investors to use unregulated exchanges with far less protection, this was always a strange choice. Fortunately, the regulator finally realized its mistake, and now we have access to products like WisdomTree Physical Bitcoin (LSE: WXBT) and CoinShares Physical Bitcoin (LSE: BITP).

For this reason, last week I attended the London listing of 21Shares Bitcoin Gold (LSE: BOLD), the newest cryptocurrency-related product developed by BFIA contributor Charlie Morris. BOLD is an intriguing concept that rebalances every month and holds a combination of gold and bitcoin according to their historical volatility. The idea is that gold and bitcoin can complement one another because of their low correlationgold performs well in risk-off situations, while bitcoin does well in risk-on ones. Since going public in Switzerland in April 2022, BOLD has returned 108% with significantly less volatility than bitcoin (see the bold . report for more information).

21Shares price chart for the cryptocurrency ETF Bitcoin Gold.

I'm not suggesting BOLD for our portfolio just yet, but this is the kind of foundation on which we might use cryptocurrencies based on their trading characteristics rather than a firm belief about how they will be adopted. Investors who are interested in cryptocurrency might want to examine its performance in more detail.