Bitcoin’s current market capitalization “is a drop in the bucket compared with markets bitcoin could disrupt,” says leading asset manager Fidelity, which believes trillions could flow into the crypto space in the coming years.
The firm, which has excited the bulls by saying people should consider investing 5% of their portfolio in bitcoin, believes the top crypto’s market capitalization will head moonwards if it manages to capture just a fraction of the alternative investment market.
At the time of writing (3.45 am in Hong Kong), the price of bitcoin was $11,360 and its market cap (price X circulating supply of 18,517,106) was $210.354 billion, according to CoinMarketCap.
The firm said in its new report: “If bitcoin were to capture 5% of the alternatives market as measured by [the Chartered Alternative Investment Analyst Association (CAIA)] that would equate to an incremental $670 billion growth in its market size. If it were to capture 10%, that would expand its market size by $1.3 trillion.”
The alternative investment market, which includes real estate, infrastructure, private equity, hedge funds, natural resources, private debt, and commodities derivatives, has grown to $13.4 trillion. It occupied 12% of the global investible market in 2018.
The CAIA believes alternatives will have a 24% share of the global investible market by 2025.
Fidelity’s report explains why investors are becoming so enthusiastic about the crypto: “The rationale of certain bitcoin holders for allocating to bitcoin is similar to their rationale for allocating to alternative investments – notably, portfolio diversification and return enhancement.
“Additionally, the interest in bitcoin and other non-yield-generating alternative investments could also increase in response to the Federal Reserve (and many other central banks) cutting their benchmark interest rate to zero (or below zero) this year. In a world where benchmark interest rates globally are near, at, or below zero, the opportunity cost of not allocating to bitcoin is higher.”
However, Fidelity warns that as more institutional players enter the bitcoin market – following a trail recently blazed by MicroStrategy, Square and Stone Ridge – the crypto could become more correlated and therefore increasingly vulnerable to external forces.
Nevertheless, Fidelity assures that bitcoin offers clear advantages over other assets: “Bitcoin is fundamentally less exposed to the prolonged economic headwinds that other assets will likely face in the next months and years. Combined with its multifaceted narratives and an interesting effect of persisting retail and growing institutional sentiment, it could be a potentially useful and uncorrelated addition to an investors’ portfolio toolkit.”
Reaction to Fidelity’s report
Fidelity’s bullish report has generated much excitement among cryptocurrency observers on Twitter and YouTube.
Prominent crypto YouTuber Lark Davis tweeted: “WOW! Fidelity now saying that #bitcoin should be 5% of an investor’s portfolio! Do you hear that distant rumble? The bulls are coming, it will be a stampede!”