Interest in Bitcoin exploded this week, culminating in a major weekend piece by The Wall Street Journal examining the rise of Bitcoin and the role it could play in the portfolio’s of individual investors. The story, Should You Invest in Bitcoin?, takes a largely skeptical view, comparing Bitcoin to historic speculative bubbles such as the Dutch tulip craze of the 1600s.
But the Journal story also includes a deeper exploration of the investment potential of Bitcoin, concluding that as an asset class it could resemble a lottery ticket. The paper cites an analysis by Raoul Pal, a former hedge-fund manager who recommends purchasing bitcoin.
“Mr. Pal admits there’s a likelihood that bitcoin ends up being worthless. But there’s also a chance, he says, that it ends up taking over at least part of gold’s traditional role as a store of value. Other bitcoin proponents believe it could become an integral part of the remittance market, since bitcoins can be sent to relatives abroad with lower fees and less hassle than traditional money-transfer services. If it replaces some or all of gold’s role, given the limited supply of bitcoins relative to that of gold, the potential upside for bitcoin is huge, possibly hundreds of times the current price, Mr. Pal says. In other words, a small amount of bitcoin is a kind of lottery ticket. It will probably be worth nothing, but if it’s worth something, it could be worth a lot.”
The Journal story also examines new investment vehicles that allow users to participate in Bitcoin without buying coins through exchanges. These include the planned bitcoin ETF by the Winklevoss Brothers and the Bitcoin Investment Trust, a vehicle created by Second Market. SecondMarket CEO Barry Silbert tells the Journal that the fund has gathered $36 million in assets as of Thursday.
The coverage in the nation’s leading financial publication caps a week in which Bitcoin has burst into the mainstream, and gotten the attention of the investment community. It’s a trend we’ll continue to track.
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