Bitcoin has undoubtedly captured the attention of many institutional investors. Today, many institutions have Bitcoin in their investment portfolios. Unsurprisingly, investment companies and regulators enact new policies to govern Bitcoin investments.
Also, platforms are looking for ways to attract more institutional investors by providing products that cater to their unique needs. Initially, institutional investors were reluctant to accept cryptocurrencies. But this has changed with several prominent companies announcing their acceptance of cryptocurrencies like Bitcoin. For instance, PayPal, Visa, and Grayscale have embraced Bitcoin. This blog post explains why Bitcoin is becoming prominent in institutional portfolios. In addition, you can enhance your investment knowledge using a reliable investment education firm like Immediate Eurax Ai.
Why Institutions Want Bitcoin in Their Portfolios
Many institutions are adding Bitcoin to their investment portfolios because they have exposure to various digital assets. Also, some have faith in Bitcoin and its underlying technology. Moreover, some institutional investors seek ways to diversify with new asset classes. Here's a breakdown of why more institutional investors add Bitcoin to their portfolios.
Some Institutional Investors See Bitcoin as a Haven
Many institutional investors consider Bitcoin a haven due to its ability to withstand economic turmoil. Most people witnessed this during the COVID-19 pandemic when this cryptocurrency's price increased while most conventional assets plummeted. Moreover, this cryptocurrency is independent of the government's control or regulation. Thus, no single government can manipulate Bitcoin's value or price, making it ideal for institutions that want to store value.
Portfolio Diversification
Many institutions invest in Bitcoin to diversify their investment portfolio. For instance, a company that has invested in stocks and commodities may want to add Bitcoin to its portfolio for diversification purposes. That way, it can minimize liquidity risk and reduce portfolio volatility. An institution that adds Bitcoin to its investment portfolio enjoys benefits, such as improved returns and risk diversification. Moreover, companies that invest in this cryptocurrency can benefit from its crypto holdings during the market turmoil because it reduces risks from foreign currency rates and emerging equities during bad market conditions.
Hedging Benefits
Bitcoin has shown hedging effectiveness. Adding this cryptocurrency to an institution's investment portfolio can help hedge against the development market. Also, it may enable a company to hedge in stressful and expected market conditions. Bitcoin is no longer a speculative trading digital asset. It's an investment tool that has shown the ability to respond to various macroeconomic factors. Its high uncertainty levels have made it usable as a hedge against conventional asset volatility. Also, Bitcoin can hedge against bonds and industry portfolios. Also, it can serve as a hedging tool for crude oil markets.
Institutional Investor Concerns
Research suggests that most institutional investors see cryptocurrencies as a modern asset class. Some consider it an innovative technology play. Others want to invest in Bitcoin due to its low correlation to conventional assets. However, due to its volatility, some institutional investors still need to be convinced to invest in this cryptocurrency.
Unlike the conventional assets that most institutional investors have in their portfolios, Bitcoin is a highly volatile investment vehicle. Thus, forecasting its future value is challenging for most institutional investors. Unpredictable price changes have preceded even record-breaking and successful periods for Bitcoin. Additionally, cryptocurrencies like Bitcoin need more data that may help investors forecast prices.
Fortunately, developers in the crypto industry have created tools that help investors gather and analyze market data to make more informed decisions. Consequently, more institutional investors are adding this cryptocurrency to their portfolios.
Parting Shot
Bitcoin has attracted many institutional investors due to its unique properties that differentiate it from conventional assets. Nevertheless, take the time to understand how Bitcoin works and its potential returns and losses. Also, check the applicable laws in your jurisdiction when adding this cryptocurrency to your institutional portfolio.
