Market Update

Bitcoin – currency of the future or speculative asset?

26 February 2021
John Greenwood
John Greenwood
Chief Economist, Invesco Ltd.
Adam Burton
Adam Burton
Senior Economist
Washington Commentary - Executive actions: A pen and a phone? It’s a bit more complicated

Digital currencies such as Bitcoin have increased in price to an extraordinary degree in 2020 and early 2021.

Bitcoin has risen by over 350% since September, rising to an astonishing level of over US$47,000 per unit after Tesla announced that it had invested in Bitcoin and was considering accepting payment for its cars in Bitcoin.

Similarly, Ethereum (another digital currency) increased in price by almost 500%.

This has left many investors scratching their heads; what has caused these incredible price increases, and more fundamentally, how should investors value these digital currencies?

More institutional investors are starting to increase their allocation to digital currencies in a move which seems to validate these digital assets.

Unfortunately, the market remains relatively illiquid, with around 2% of accounts owning over 90% of all Bitcoins in existence.

How should investors view Bitcoin within a modern portfolio?

There are three fundamental questions to ask when assessing the place of digital currencies within a portfolio:

  1. What is Bitcoin?
  2. What are its supply/demand characteristics?
  3. What are its attractions?

We answer these questions in the following articles. Click on one of the articles below to begin the series.

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

  • All data is as at 31 January 2021 unless otherwise stated.

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

    Where John Greenwood and Adam Burton have expressed opinions, they are based on current market conditions, may differ from those of other investment professionals and are subject to change without notice.