The outlook for the U.S. dollar keeps getting weaker. But investors who are prepared are set to make a fortune.
When it became clear that the U.S. central bank would print mass amounts of money, investors initially flocked to safe-haven assets such as gold and silver.
These assets have historically been investments to buy to protect against a weaker dollar and inflation, but times are changing.
Instead of buying gold and silver for protection, the “smart money” is buying bitcoin — here’s why.
Bitcoin Isn’t as Risky as You May Think
Bitcoin has historically been considered a risky asset. But it’s not as risky as many believe.
Investors remember its 83% fall during 2018 after a rapid rise in 2017 — a drop that diverted attention from the bigger picture.
In response to criticism that bitcoin is risky: The data suggests otherwise.
Investors frequently use the Sharpe ratio to measure risk-adjusted returns, or how risky an asset is in relation to its gains.
Institutional investors often consider the Sharpe ratio when evaluating strategies or assets for portfolio inclusion.
That said, bitcoin has had the highest Sharpe ratio of any major asset over the past three years, at 0.78.
Bitcoin’s high Sharpe ratio has made it attractive for money managers and earned it a spot in many institutions’ portfolios.
Not only has bitcoin offered the best risk-adjusted returns over time, it has also performed 358% and 321% better than gold and silver this past year, respectively.
(Source: Bloomberg.)
Institutions Are Holding On to Their Bitcoin
Expect bitcoin’s volatility in the future to decrease.
The cryptocurrency has seen a lot of support from institutional investors and corporations over the past few years, reducing the magnitude of price swings.
Since mid-2020, huge fund flows have been moving into cryptos, with the majority being invested in bitcoin.
(Source: Coinshares.)
These institutions are holding bitcoin for hedging and price appreciation to protect against inflation and weaker currencies.
With more players holding and less selling, the supply of bitcoin will be extremely limited, and price dips will be bought.
Bitcoin Is the Answer to a Weak Dollar
With a new supply of U.S. dollars continuously flooding in, bitcoin has never looked more attractive.
Over the past year, the U.S. money supply has expanded by 29%.
(Source: Bloomberg.)
Considering gold only gained 17% during the same time frame, it seems that it offers poor protection.
Bitcoin is the answer.
And bitcoin and other cryptos are showing no signs of slowing down. Investors still have the potential to make huge gains in the years to come.
Regards,
Analyst, Automatic Fortunes
