Why billionaires are suddenly accumulating Bitcoin after 113% YTD gain

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Billionaires have been increasingly accumulating Bitcoin (BTC) in recent months. Following Paul Tudor Jones’ lead, hedge fund manager Stanley Druckenmiller became the latest billionaire to publicly disclose his Bitcoin investment.

The performance of Bitcoin since 2015. Source: TradingView.com

There are four main reasons Bitcoin is becoming more compelling to high-net-worth investors. The reasons are Bitcoin’s effectiveness as a portfolio diversifier, inflation hedge, gold alternative and large risk-reward potential.

Investors increasingly viewing Bitcoin as “gold 2.0”

Gold is an important store of value and a safe-haven asset for institutional investors. It serves as a hedge against inflation and as a hedge against a potential market downside.

Investors consider gold as more of a method of insurance to protect a portfolio from market corrections and macro uncertainty. As such, safe-haven assets typically do not return large gains in the short to medium term.

Bitcoin has the potential to achieve both, as it is evolving into a safe-haven asset with massive growth potential.

Gold’s market capitalization is estimated to be around $9 trillion. In contrast, Bitcoin is valued at $285 billion, leaving a large gap between the two assets’ valuations.

In an interview with CNBC on Nov. 9, Druckenmiller emphasized that the brand of Bitcoin as a store of value only improves as time passes. He said:

“Bitcoin could be an asset class that has a lot of attraction as a store of value to both millennials and the new West Coast money — and, as you know, they got a lot of it. It’s been around for 13 years and with each passing day it picks up more of its stabilization as a brand.”

Large risk-to-reward potential

During his interview, Druckenmiller noted that he owns “many many more times gold” than Bitcoin. But the billionaire investor emphasized that if gold rises, Bitcoin would also see massive gains and “probably work better.”

Compared to gold, the dominant cryptocurrency is “thinner” and “more illiquid,” the investor said. Hence, there is larger upside potential, even if Bitcoin composes of a smaller percentage of a portfolio than gold.