Bitcoin (BTC) Could Potentially be Added to Well-Diversified Investment Portfolios, Yassine Elmandjra from ARK Invest Argues

Yassine Elmandjra, an analyst at ARK Investment Management, a company that invests in Fintech projects and other next-generations technologies, says that Bitcoin’s (BTC) blockchain will “contribute more dramatically and profoundly to the evolution of monetary and financial systems than any other breakthrough in history.”

Elmandjra, whose comments are part of WealthTech Views Report on how DLT and blockchain is shaping the future of wealth and asset management, argues that Bitcoin’s promise or main value proposition is in the “contrast” it provides to traditional financial systems which depend on centralized institutions that are tasked with enforcing the rules, record-keeping, and adjudication.

He adds:

“Under a ‘trust-based’ model, the integrity of an institution is a function of those controlling it. Without central control, Bitcoin’s integrity is a function of its openness and transparency, and a challenge to old world institutions.”

He claims that financial institutions that are established using a trust-based model are unable to offer predictable economic assurances. Elmandjra argues that we should be able to exchange value “globally and freely.” He believes that wealth must be “owned wholly” and protected.

A proper financial system should also be able to enforce rules “reliably and predictably.” The users of the system must be able to verify its integrity as well.

As covered earlier this month, ARK Invest had noted in another comprehensive report that by “eliminating the need for a trust-based model,” Bitcoin is arguably beginning to call into question the existing foundation of more traditional economic organizations. The pseudonymous digital currency also appears to be playing a key role in establishing a more stable financial system, the ARK Invest team had stated.

As covered in October 2019, Germany’s Bavarian State Bank had released an extensive report that argued that Bitcoin is designed as an “ultra-hard type of money” which is poised to “take a big leap” in 2020.

Indeed, Bitcoin and the larger crypto-asset market have taken a significant leap forward this year. But before making this impressive run, BTC and other digital assets had crashed just like the larger traditional financial markets at the beginning of the COVID-19 pandemic in March 2020.

While Bavaria bank’s report may have (to some extent) accurately predicted that Bitcoin would continue to hold its ground, it’s highly unlikely anyone could have been prepared to experience the type of socioeconomic changes resulting from the Coronavirus.

Bavaria’s report had stated:

“When the [Bitcoin] price rises (falls) and more (less) computing power enters the system, the difficulty of mining new bitcoins will correspondingly ratchet up (down). This safeguards the targeted bitcoin circulation irrespective of price fluctuations. A further special feature of bitcoin tokens, which is likewise due to their digital character, is that they cannot be hung around people’s necks (in contrast, for example, to a gold necklace) or used as an input in production.” 

It continued:

“What would appear, at first glance, to be a disadvantage is, in fact, a feature and not a bug from the point of view of the stock-to-flow approach. Given that there are no other uses at all for bitcoins, no other demand-side developments (e.g. demand for gold in connection with the spread of smartphones) can distort price formation. Due to the deterministic trend in supply, there are naturally no supply-side shocks either.” 

The report’s authors had also predicted that “Bitcoin is poised to take a big leap forward in 2020” – a jump that may hit a “vertiginous” price of $90,000. Bitcoin is currently trading at around $10,000 and it’s highly unlikely that it will reach $90,000 this year or even in 2021.

However, Elmandjra notes:

“Bitcoin’s rapid growth and low correlation of returns to traditional asset classes is positioning it to earn a strategic allocation in well-diversified investments portfolios. In our view, as investors seek to improve their risk-adjusted returns, Bitcoin offers one of the most compelling risk-to-reward profiles of any asset class in the world today.”

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