Billionaires are buying Bitcoin. Should you do the same?

In 2024, a surprising number of billionaires have become optimistic Bitcoin (BTC -0.32%). Some of them are billionaire hedge fund managers. Others are tech entrepreneurs or captains of industry. And there’s even a billionaire real estate mogul turned politician who embraced Bitcoin as a campaign issue.

This sudden surge around Bitcoin is somewhat surprising considering that just a few years ago, many of these billionaires were publicly remarking that Bitcoin was not something they would ever invest in. So what changed between now and then to convince me to buy Bitcoin?

The rise of Bitcoin as a new asset class

A key change has been the growing awareness that Bitcoin is now an asset class in its own right – just like stocks, bonds, commodities or real estate. This change in mindset, which began to take hold during the previous crypto bull market rally, has important ramifications for portfolio management. This means that if you are trying to optimize the risk-reward profile of your portfolio, you should consider allocating at least a small portion to Bitcoin.

But how big is an allocation? If you play it safe then 1% should be enough. Indeed, even billionaire hedge fund managers seem to limit their global exposure to 1%. But Fidelity Investments recently suggested that a range between 2% and 5% might make sense for aggressive investors. And Ark Invest’s Cathie Wood even suggested earlier in the year that you might want to go up to 19.4%.

A new way to invest in Bitcoin

However, this shift in thinking about Bitcoin as an asset class is only part of the story. The launch of new spot Bitcoin ETFs in January also played a key role in attracting new billionaire investors. These new ETFs have given investors the chance to add Bitcoin to their portfolio easily and conveniently.

Image source: Getty Images.

Suddenly, Modern Portfolio Theory became more than just a theory. With the new ETFs, it has become possible to allocate part of any portfolio to Bitcoin to get the right risk-reward profile. You can adjust this allocation without ever having to enter the (sometimes chaotic) cryptocurrency market.

The “digital gold” argument is going mainstream

For years, crypto enthusiasts have referred to Bitcoin as “digital gold.” They argued that it could become a good refuge in times of economic or geopolitical uncertainty. And now that thinking is increasingly popular among the billionaire investor class. What do you buy when the world seems to be teetering on the edge? A few years ago, the answer would have been gold. Today, the answer might be Bitcoin.

In July, for example, tech billionaire Mark Cuban outlined two potential risk scenarios where you might want to add Bitcoin to your portfolio. One involves geopolitical risk, or the risk that missiles will start flying in one part of the world. And the other involves inflationary risk and the potential devaluation of the US dollar. In both scenarios, Cuban says, it might make sense to own Bitcoin.

Bitcoin’s Growth Potential

So far, I haven’t even mentioned Bitcoin’s growth potential. And that’s because this argument seems so simple, especially with tech billionaire Michael Saylor, founder and executive chairman of MicroStrategy (MSTR 8.02%)now throwing around $13 million worth of Bitcoin price predictions. Apart from Nvidia or other leading tech stocks, is there any other asset in the world that has the upside potential of Bitcoin?

Already up 45% in 2024, Bitcoin remains one of the best performing cryptocurrencies of the year. When you combine that with the fact that Bitcoin has been the world’s best-performing asset for 7 of the last 10 years, it’s easy to see why billionaires are so interested in increasing their exposure to this cryptocurrency. And Bitcoin’s track record is now long enough, going back more than a decade, that we can start to trust the data.

But is Bitcoin right for you?

What makes Bitcoin particularly unique is that it has two properties that are highly sought after by investors everywhere: long-term growth potential and downside protection. The world simply hasn’t seen anything like Bitcoin, and even the brightest minds on Wall Street have struggled to make sense of it.

For example, a new white paper from BlackRock says that Bitcoin can be a “risk-on” asset and a “risk-off” asset at the same time. And Ark Invest’s Cathie Wood suggested last year that Bitcoin is a rare asset that can perform well in both inflationary and deflationary economic environments.

If this is indeed the case, it is easy to see why investors should allocate at least a small portion of their portfolios to Bitcoin. With the new spot Bitcoin ETFs, you can easily add Bitcoin to your portfolio in the time it takes you to read this article.