Bitcoin: An Uncorrelated Asset Class?

July 25, 2017

Bitcoin, the peer-to-peer cashless currency, has been making news recently, as its value soared from less than $1 a unit when it was founded in 2009 to its historical high of more than $1,360 at the end of April 2017. While some investors see Bitcoin as an attractive investment opportunity, three out of four Americans have never even heard of it. In her latest column for South Florida Business and Wealth, WE Family Offices Partner Julie Neitzel explains how Bitcoin works and discusses the strengths and drawbacks of one of the most talked about non-traditional assets.

“Bitcoin users establish digital accounts, known as wallets, with private key codes that enable access to balance information and the ability to transact,” Neitzel explains. “The price of bitcoin is determined by demand and supply, subject to price volatility similar to a commodity or a stock. “

So why would you want to use Bitcoin as one of your non-traditional assets? One appealing aspect Neitzel highlights is the ease of transferring funds across borders. She also gives the example of investors in markets where there are strict capital controls (such as China) who may also use Bitcoin to circumvent the traditional financial system and export capital. Because Bitcoin exists in the public domain, there is no point of authority that a government can enforce.

While an increasing number of retailers are accepting Bitcoin, including Microsoft, Expedia, Walmart and even Lamborghini, it’s not without challenges. Neitzel sites the risk of hacking as well as ever-changing regulation around Bitcoin as two serious risks.

“The future of Bitcoin is uncertain,” she concludes, “but it might be the next uncorrelated asset class and an addition to managed portfolios. As always, investors should confer with their wealth advisers about the risks and opportunities.”

The full South Florida Business and Wealth article is available here.