Shares represented by the S&P 500; bonds represented by the Bloomberg U.S. Aggregate Bond Index; gold represented by London Bullion Market Association (LBMA) Gold Price PM USD. Monthly data from Bloomberg Finance LP. Source: Fidelity Investments, Morningstar, Bloomberg Finance LP. Full time period is August 1, 2010–March 31, 2024. The four respective time periods used are: August 1, 2010–December 31, 2013; January 1, 2014–May 31, 2017;June 1, 2017–October 31, 2020; and November 1, 2020–March 31. 2024.
Source: How bitcoin may impact your portfolio. Evaluating bitcoin’s potential benefits and risks. Fidelity Viewpoints
Not yet a medium of exchange
Notwithstanding steps towards bitcoin becoming more mainstream, it still falls short of one of the definitions of a currency — it is not yet a widely accepted medium of exchange.
To be clear, it arguably does meet two other definitions of a currency — bitcoin is a store of value, and unit of account. However, ticking two out of three boxes still leaves bitcoin short of indisputably being a currency, in our view.
Bitcoin’s volatility, transaction fees, and limited acceptance as a medium of exchange restricts its utility as a currency and so it continues, we believe, to present as a speculative investment for value appreciation. Ireland’s central bank, for instance, likens crypto investment to lottery playing and stresses that only expendable funds should be risked.13
Furthermore, there are uncertainties and complications stemming from the evolving digital assets landscape. Different jurisdictions may approach regulations differently, which can create legal uncertainties that impact contracts and transactions involving cryptocurrencies, including bitcoin.
Impossible to value by conventional means
For investment professionals, being able to value assets by metrics such as future cash flows, dividend yields, yield-to-cash flow, and more, are non-negotiables.
However, bitcoin is impossible to value by any orthodox standard. It produces no cash flows, and its value is simply determined by what someone is willing to pay for it, on the expectation of the price rising in future. Said differently, bitcoin remains a poster child of speculation.
The not-so-great history of private money
Bitcoin is not the first attempt at creating private money. Afterall, there are around 10,000 cryptocurrencies today and the United States flirted with a system of private money in the Free Banking Era from 1837 to 1863 during which hundreds of private entities went about issuing their own private bank notes.
The reserves of these ‘banks’ were not always verifiable and thus were subject to runs on the bank in which customers could not access their funds. The passing of the 1863 National Bank Act ended the experiment.
On balance, we continue to lean towards the ‘not now’ to bitcoin camp when considering if bitcoin warrants a place in our diversified portfolios. We continue to keep a close eye and an open mind, and actively monitor the cryptocurrency ecosystem including regulators’ attitudes.
Investments in technology leaders feature in our portfolios
Beyond our bitcoin caution, the diversified portfolios we manage for our clients generally feature investments in businesses at the forefront of technological innovation, such as NVIDIA, Microsoft, Apple, Taiwan Semiconductor, Amazon, and Alphabet (Google’s parent company).
In the private markets space, our portfolios also generally include infrastructure investments benefiting from the economic digitisation trend through exposures to fibre networks and telecommunications towers.
We believe data demand will continue to increase driven by cloud computing, and the Internet of Things (The Internet of Things (IoT) describes the network of physical objects — “things” — that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet).
Given the pace of activity and competition in the technology arena and claims and counterclaims on who is ahead and who is behind (think of the kerfuffle created by Chinese startup DeepSeek’s AI assistant), periods of market volatility can be expected.
Today’s leaders may not be tomorrow’s and that’s why diversifying across multiple companies in both the public and private market realms makes sense.
