Why Ignoring Bitcoin May No Longer Be An Option

On November 5, the United States once again elected Donald Trump president. Running on a pro-crypto platform, Mr. Trump promised less regulation and more acceleration of Bitcoin growth, and we have since seen bitcoin hit a new all-time high of $79,954 (10th November).

Bitcoin (BTC) has skyrocketed 89.2% year-to-date, and the data sends a clear message: Institutions that once dismissed bitcoin are now facing a potential game-changer. The question is no longer if bitcoin belongs in institutional portfolios, but rather: Can you afford not to include it? From regulatory breakthroughs and ETF approvals to bitcoin’s evolving infrastructure, the story has changed. I want to discuss why ignoring Bitcoin may soon be seen as a strategic misstep.

From Illegitimate to Institutionalised: The Regulatory Stamp of Approval

One of the foremost reasons institutions have avoided Bitcoin is the perceived lack of legitimacy. However, recent regulatory approvals of Bitcoin ETFs have fundamentally changed this perspective. The institutional appetite for Bitcoin is growing, with BlackRock’s iShares Bitcoin Trust (IBIT) dominating inflows across the company’s product offerings this year.

Beyond the United States, the global market for Digital Asset ETFs is expanding. With offerings in regions like Hong Kong, Australia, Canada, and Europe, Bitcoin is gaining a footprint in regulated markets worldwide. Each of these ETFs provides a framework that elevates Bitcoin from speculative status to a recognised asset class.

Dispelling the Intrinsic Value Argument

For years, critics of Bitcoin claimed it lacked intrinsic value. However, the blockchain industry’s heavy investments in research and educational resources highlight the asset’s evolving role. Publications, think-tanks, and educational hubs are fostering a deeper understanding of Bitcoin’s potential.

Many institutional players now view Bitcoin as a form of “digital gold” – a scarce asset with characteristics that align it with store-of-value narratives, hedging against inflation and traditional market volatility. Blockchain’s on-chain transparency adds another dimension to its appeal, making every transaction visible and traceable, a level of transparency that many traditional assets lack.

A New Frontier of Digital Gold and Payment Capabilities

Bitcoin’s role in the financial ecosystem has evolved well beyond a mere speculative asset. With advancements in Bitcoin’s infrastructure, including Layer 2 solutions and the Lightning Network, Bitcoin has strengthened its position as both a store of value and a medium of exchange.

Furthermore, 2024 saw the emergence of two important developments on Bitcoin: the Bitcoin DiFi market (BTCFi) and the trend of Inscriptions, both underlining Bitcoin’s expanding use cases. BTCFi, in particular, represents a new class of financial products built around Bitcoin, facilitating decentralised finance (DeFi) functions directly on BTC. It unlocks the ability to issue both fungible and non-fungible assets on the Bitcoin network, which can be transferred using either the Bitcoin main-net or its layer-2 solutions. This broader usability supports Bitcoin’s appeal as an innovative asset with real-world application, aligning with both retail and institutional interests.

Volatility Concerns? Comparing Bitcoin with Tech Stocks and Traditional Assets

The concern about Bitcoin’s volatility remains valid, yet recent data paints a nuanced picture. When Bitcoin’s volatility and returns are compared with those of tech-forward stocks, Bitcoin proves to be relatively stable compared to the general perception.

Bitcoin’s Sharpe Ratio vs Traditional Assets (5yr timeframe)

A comparative chart of Bitcoin’s price performance against traditional assets reveals that BTC’s volatility level appears to be more as it increasingly grows to be a financial instrument. Additionally, its risk-adjusted returns (measured by the Sharpe Ratio) often outshine the traditional assets. In the current market environment, characterized by macroeconomic challenges and geopolitical uncertainties, finding assets with such potential returns is increasingly difficult.

Bitcoin’s price volatility is increasingly being understood as a feature rather than a flaw, offering portfolio diversification opportunities that traditional assets cannot match.

Accessibility for Institutional Investors: A Growing Suite of Route-to-Markets

The argument that Bitcoin is hard to access no longer holds weight.For direct exposure using institutional custody solutions, firms like Coinbase Custody and Fidelity Digital Assets have significantly grown their institutional custody businesses, making it more efficient to access secure storage options tailored to institutional needs. These custodial services align with regulatory standards, offering peace of mind to institutions wary of the risks associated with digital asset storage.

For the exposure via derivatives, the BTC futures market has now fully institutionalised, with CME’s BTC Futures Open Interest exceeding $14.6billion (ATH), institutional investors now have sufficient tools to hedge or speculate within a regulated environment, while long and short products also offer flexibility in investment strategies.

For passive exposure, the spot ETFs are now approved in the U.S., HongKong, Canada, Australian, European market, and more, providing simplified and regulated access, circumventing the need for both asset managers and investment platforms.

Reconsidering Your Position: Can You Confidently Reject Bitcoin?

Institutional portfolios have long avoided Bitcoin due to concerns about legitimacy, intrinsic value, accessibility, and volatility. But each of these arguments has been systematically addressed. ETFs have institutionalised Bitcoin; research and education have expanded its perceived value; custody solutions and financial products have improved its accessibility; and comparative data reveals its viability as a high-return asset.

The ultimate question becomes: Are the old reasons for excluding Bitcoin still valid? The answers may well determine whether institutions will be among those driving Bitcoin’s next surge – or watching from the sidelines.

Bitcoin’s journey from a fringe asset to an institutional-grade investment has been marked by rapid growth, robust infrastructure, and increasing adoption. As institutions consider their next steps, ignoring Bitcoin may no longer be an option. The time for institutional FOMO is here, and the question remains: Will you embrace the change, or risk being left behind?

Institutional FOMO: The Driving Force Behind the Next Bitcoin Surge?

As Bitcoin’s legitimacy, infrastructure, and market access evolve, institutional interest is increasingly giving rise to a phenomenon akin to “FOMO” (Fear of Missing Out). When institutions enter the market, they often do so in a substantial way, potentially driving the price of Bitcoin higher. With Bitcoin currently positioned near the end of a market cycle and a halving event scheduled for 2024, industry analysts predict the beginning of another bull run.

Bitcoin’s halving cycles historically correlate with price increases, and a potential rally could push Bitcoin’s price to $100,000 by the end of the year. As new administrative policies take effect in January, further regulatory clarity may catalyze additional institutional involvement.