Situating cryptocurrencies like Bitcoin amid other more "traditional" asset classes has always been contentious. What we do know is that Bitcoin is one of the largest assets in the world by market cap.
"Bitcoin is really the first truly independent asset in history," says Invity's CEO Štěpán Uherík. In a new interview, he weighed in on the value of Bitcoin as an asset, both on its own and as part of a larger investing strategy.
Where does Bitcoin fit in with traditional assets?
"I think Bitcoin has already become an investment asset in its own way," Štěpán explained. "It has separated itself from 'traditional assets' but it's also not among the 'alternative investments' we typically think of."
"From an analyst's perspective, it has to be said that Bitcoin is still highly correlated with traditional financial markets. So it seems that we cannot yet say that Bitcoin is exactly a counterweight to the stock market, for example. But at the same time we must admit that things like gold, which has also had a significant correlation with the financial markets over the past decade, is not a real 'alternative' either."
Despite this dynamic, Štěpán explains that diversifying by holding different types of assets is seen as a way to both mitigate risk and react to market events through portfolio rebalancing.
"There's a saying, something like 'one who never makes mistakes need not diversify,'" he said. "In the first place, diversification helps reduce risk when building wealth. Diversification comes in many forms, from splitting your assets between multiple investment vehicles (stocks, bonds, real estate, Bitcoin), to geographic diversification, and time diversification: meaning making regular purchases based on dollar-cost averaging."
When including Bitcoin in a portfolio, Štěpán personally identifies two key roles for this cryptocurrency. First, Bitcoin can serve as a so-called "digital gold": a tool that can appreciate in value over the long term. Second, it can serve as a form of "new money": allowing efficient exchanges in an increasingly interconnected and borderless world.
How can people who don't hold crypto build a portfolio?
To people who are yet to hold any form of digital currency, Štěpán has nothing but good things to say. "First of all, I would congratulate them for not succumbing to FOMO. I think that's a great starting point in terms of forming your own opinion."
Štěpán recommends that people keep an open mind and go out of their way to read up on both a government monetary policy known as quantitative easing and Bitcoin's founding principles.
"I think the best time to buy Bitcoin is when you have money," he said. "Investing is a mental process for the long term and the only way to protect and build wealth over the long term. So I would recommend starting with regular purchases in smaller amounts and do away with the idea of getting rich quick. I would also recommend purchasing a hardware wallet as soon as possible, so that you can safely store your assets."
When it comes to Štěpán's own investment portfolio, he structures it in three pillars: investing in effective education and self-development; traditional assets, primarily index funds in the form of ETFs; and Bitcoin—building non-confiscatable assets.
Bitcoin: An independent asset when held with care
"At its simplest—and most important—Bitcoin is non-confiscatable. It is something people are able to manage themselves, and the Bitcoin network is a framework that is managed by the people that use it," Štěpán said. "It therefore gives holders independence. In this sense, Bitcoin is really the first truly independent asset in history, in my opinion."
Yet with this freedom and autonomy, inexperienced users can find the landscape difficult to safely navigate. "The biggest disadvantage of Bitcoin is that a finely tuned system is supposed to be used by humans, with all their idiosyncrasies and weaknesses," he explained. "If, as a holder, I am not responsible—for example I lose my private key or send to a wrong address—there is no one who can help me. With freedom, in short, comes responsibility."
"I believe that newcomers to Bitcoin need to first be provided with a safe environment and then be uncompromisingly educated and motivated to gradually assume their own personal responsibility willingly and with confidence."
Disclaimer: This is not an investment recommendation. We provide a space to share the knowledge and information needed for self-education and critical thinking.
