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Novice Observing the Cryptocurrency Market, Renowned Venture Capitalist: Bitcoin's Volatility is High, I Will Invest If the Top Seven Cryptocurrencies Are Bundled into an ETF

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Novice Observing the Cryptocurrency Market, Renowned Venture Capitalist: Bitcoin

Kevin O'Leary, a star investor on the popular American reality TV show "Shark Tank," has recently changed his views on Bitcoin. He not only claims to be not against Bitcoin but also stated that he would be willing to hold Bitcoin in 20% of his asset allocation if regulatory conditions in various countries allow.

Bitcoin Is Not Real Currency

O'Leary has actually held Bitcoin for a long time, but he publicly stated on a CNBC program in May last year that Bitcoin is garbage and worthless, saying:

Bitcoin is just a digital game. If I try to buy real estate in Switzerland with Bitcoin, the seller will reject it due to its high volatility. It is worthless. Today's hot item is Bitcoin, but tomorrow it could be any other cryptocurrency.

It is understood that O'Leary invested in Bitcoin near the peak in 2017, so he claimed to have suffered a 70% loss in 2019. However, after negotiations with Bitcoin evangelist and co-founder of Morgan Creek, Anthony Pompliano, he seemed to have slightly changed his views.

Allocating 20% of Assets to Bitcoin

O'Leary mentioned on Pompliano's show "Pomp Podcast" that he might invest more assets into Bitcoin, but he feels a bit troubled by the imperfect regulations. He said:

If you tell me that Switzerland, Europe, the United States, Canada, and Australia all approve Bitcoin, then I will allocate 20% of my assets to it no matter what.

He added that he has always allocated 5% of his assets to gold to hedge against fiat currency inflation, but Bitcoin does not have this characteristic. He believes there is a high correlation between the stock market and Bitcoin, noting that when the traditional financial market falls, Bitcoin corrects along with it. While the stock market has been hitting new highs this year, Bitcoin has also been hitting new highs.

Bitcoin ETF Needed to Attract Institutional Investors

Pompliano, of course, defended Bitcoin, suggesting to O'Leary that Bitcoin is called digital gold, with a price increase of about 90% last year and even higher at 175% this year, compared to gold's 20%. Why not allocate half of the gold assets to Bitcoin? O'Leary responded:

I have thought about this too, but actually, my 5% assets are already a significant sum. If I am willing to bear the 10% or 30% daily volatility of Bitcoin, its regulations still need to be improved. If the SEC someday indicates the creation of a Bitcoin ETF, recognizing it as a payment system and value store, then more investors like me would be willing to invest in it.

He believes that Bitcoin has too much volatility and lacks liquidity, but if the top seven cryptocurrencies by market value are packaged as an ETF, he would seriously consider holding a basket of cryptocurrencies in ETF form.

Altcoins Are More Prone to Sharp Increases and Decreases

In fact, when looking at the top ten cryptocurrencies by market value at the beginning of the year, Bitcoin remains a more stable investment option. If calculated from January 2018, the performance of each project is as follows:

  • ADA: +81%
  • TRX: +65%
  • XEM: +27%
  • BTC: +28%
  • BCH: -89%
  • IOTA: -82%
  • XRP: -72%
  • LTC: -67%
  • XLM: -63%
  • ETH: -38%
2018 Top Ten Cryptocurrencies Performance (Source: tradingview)

In short, Bitcoin, known as the king of cryptocurrencies, is like the market index in the market. Compared to other smaller coins, its price increase may be limited, but it is less likely to experience a 90% drop or go to zero. This is why some investors are eager to pursue altcoins to achieve far higher returns than Bitcoin, but of course, risks are also exponentially magnified.

In addition, compared to traditional assets, Bitcoin's volatility is still lower than oil, emerging market currencies, and is quite close to gold, U.S. real estate, and the U.S. stock market, as shown in the figure below.

Bitcoin Correlation with Traditional Assets (Source: woobull)

O'Leary may have such bold ideas about the cryptocurrency market because he is not very familiar with it. He mentioned in the podcast that he incurs many inexplicable fees when entering and exiting Bitcoin, but did not provide specific details. However, compared to his argument in 2019 that "Bitcoin is garbage," O'Leary has clearly begun to change his views.