Billionaires are selling Nvidia shares and buying this hot cryptocurrency

Until recently, billionaire investors seemed to have little or no interest in buying Bitcoin (CRYPTO: BTC). But that looks set to change in 2024. Half of the top 20 billionaire hedge fund managers now own Bitcoin. And in some cases, they sell Nvidia to buy this hot cryptocurrency for their portfolios.

There are a number of factors at work here, of course. Don’t just sell off an ultra-performing stock like Nvidia for no good reason. Let’s take a closer look at why billionaires are turning to Bitcoin.

Bitcoin ETFs

The real high point for Bitcoin ownership seems to have been the launch of the new spot Bitcoin 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. Based on the latest 13F filings with the SEC, it is possible to see how much money has flowed into Bitcoin in the last eight months, and frankly, the numbers are staggering.

According to the latest figures from CoinShares, nearly $20 billion has flowed into Bitcoin since the beginning of the year. That’s far more than any other cryptocurrency, and you can thank the new Bitcoin ETFs for that. In fact, hedge funds have emerged as some of the biggest buyers of these ETFs.

At the same time, as the billionaires buy Bitcoin, they are simultaneously shedding 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 iShares Bitcoin Trust (NASDAQ: IBIT)which has become the most popular of the new spot Bitcoin ETFs.

Bitcoin’s Growth 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 set a new all-time high of $73,750 in March.

That’s impressive, but Nvidia is up 132% this year. And if you zoom out and look at Nvidia’s performance over the past two years, it’s astounding. If ever there was a stock that went truly parabolic, it’s Nvidia.

Billionaires are supposed to be the “smart money”, so why would they sell an asset that has gone parabolic and reallocate that money elsewhere? It may sound obvious, but it has to do with Bitcoin’s growth potential.

Arguably, Bitcoin has an even bigger advantage than Nvidia over the next two decades. In fact, Michael Saylor of MicroStrategy suggested that Bitcoin could be worth as much as $49 million per coin by 2045. That’s a potential return on investment of nearly 83,000%!

The story continues

Bitcoin as an asset class in its own right

Another factor in Bitcoin’s favor is the growing awareness on Wall Street that cryptocurrency is an asset class in its own right, with its own unique risk-reward profile. This is of enormous importance from the perspective of portfolio diversification. So, just as a savvy billionaire investor might allocate a certain percentage of their portfolio to traditional asset classes (such as stocks or bonds), there is now a perceived need to allocate at least a small portion of that portfolio to crypto as well.

The big question, of course, is how big that allocation will be. For now, it appears 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 she’s jumping headfirst into crypto just yet.

But 1% of a $100 million portfolio is $1 million, so serious money is at stake. And that 1% allocation is certainly destined to become much larger over time. For example, Ark Invest’s Cathie Wood suggests that the optimal portfolio allocation for Bitcoin could be as high as 19.4%.

Risk Adjusted Bitcoin Performance

Both Bitcoin and Nvidia are high-risk, high-reward investment opportunities. Instead of focusing only 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 tracked. In general, the higher the Sharpe Ratio, the more attractive the investment.

And that’s what makes Bitcoin so remarkable as an investment. Over the past decade, Bitcoin has actually had a higher Sharpe ratio than any other asset class, and that includes tech stocks. In layman’s terms, Bitcoin is incredibly risky and volatile, but man, you get paid for taking on all that excess risk!

Bitcoin in the long run

Billionaire investors consider more than just past performance. They think about the potential for growth, the overall diversification of their portfolio, and the total amount of risk in their portfolio. And that’s what makes Bitcoin so appealing as a long-term investment opportunity. It may be risky and speculative, but it has the potential to deliver unmatched long-term performance.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Nvidia. The Motley Fool has a disclosure policy.

Billionaires Are Selling Nvidia Shares and Buying This Hot Cryptocurrency was originally published by The Motley Fool