Bitcoin: A Teaching Moment

Whether a wealth advisor sees Bitcoin as an attractive investment opportunity or as more of a speculative investment, the dramatic rise in the distinctive currency’s price this year can offer a valuable teaching moment on an advisor’s core investment beliefs.

For advisors who are long-term, value investors, the Bitcoin phenomenon appears to be a speculative bubble. As a crypto-currency, existing in cyberspace, it could be argued, as Jack Bogle recently did, that Bitcoin has no intrinsic value at all. For those who believe this, underlying fundamentals to turn to in setting a price are lacking, leaving no basis to predict future value. The price spike is based on perception, and, therefore, a change in perception could cause the bubble to burst. Such advisors believe that holdings like Bitcoin have no place in a soundly managed investment portfolio.

On the other hand, advisors more favorably disposed to Bitcoin may underscore its potential role as an “alternative” investment appropriate for a non-correlated, but possibly more speculative allocation, in a diversified portfolio. These advisors may reinforce the view that all value is fundamentally based on perception and feel that growth opportunities in particular may be missed if too much weight is placed on “fundamental” value.

For either side, the nature and characteristics of Bitcoin provides an opportunity to explain in the clearest of terms, their distinct approach to investing.