Markets and Economy

Podcast: How does bitcoin fit in an investment portfolio?

Purple bitcoin logo on a computer circuit board
Key takeaways
What is bitcoin?

Bitcoin is a digital currency that’s evolved into a digital store of value with some characteristics of gold.

Pricing bitcoin

The important issue for investors is how it’s valued, which depends on a variety of factors. 

Speculative undercurrent

The price of bitcoin may just boil down to what someone will pay for it given the circumstances. 

Bitcoin’s price has surged in 2024, surpassing pandemic-era peaks. The climb has followed the approval of spot bitcoin exchange-traded products (ETPs), which opened up the cryptocurrency for investors of all stripes. Easier access may not be the only reason for the rising price. What does it even mean to put a price on this asset? And how does such a volatile asset fit into a broader portfolio?

Ashley Oerth, Associate Global Market Strategist at Invesco, and Ken Blay, Head of Research for Invesco’s Global Thought Leadership team, joined the Greater Possibilities podcast to talk about bitcoin and its potential place in a portfolio alongside stocks and bonds.

What is the purpose of bitcoin?

Bitcoin started as a digital currency. While it can be used in certain situations, it never really caught on as a means of paying for everyday transactions. Instead, bitcoin has evolved into a digital store of value with some characteristics of gold. But even that is a bit of a reach (at least for now) given its volatility from one day to the next. The benefits to investors include its limited supply and tempting price cycles.

Ashley highlights the critical differentiators of bitcoin


I would say the sort of critical differentiators for bitcoin is the fact that it’s got this sort of supply limitation built into it. And as we’re discussing already, we’re focusing on bitcoin, but we could be discussing other cryptocurrencies as well. But bitcoin it has got this incredible brand recognition, and I think that’s helped it stay at the top of the crypto charts. Bitcoin, it was really the first cryptocurrency, and it sort of stands as representative of the entirety of the crypto space.

How can bitcoin be priced?

To some degree, the purpose of bitcoin may even be beside the point. The more important issue for investors is how it’s valued, or at least priced, which depends on a variety of factors. 

Ashley explores the drivers that influence bitcoin prices.


I think the critical takeaway here is that you cannot really value bitcoin. You can try to price it, you could try to build a framework around its likely drivers. And so, we do have some ideas, and you highlighted a few of them, of what can be a driver here. But I think what it comes back to is what are the supply and demand factors underlying bitcoin itself, and then broadening away from that, what is the sort of financial backdrop? What are financial conditions telling us, and how does that affect the opportunity cost that’s wrapped up in holding bitcoin?

Bitcoin’s early history from inception to 2014 was a “crazy period” that included very high but very risky returns. The following 10 years were significantly closer to more recent price behavior but still included some huge price swings. There have been one-year periods where bitcoin gained 1,000%, and one-year periods where it lost more than 70%. Wild price swings can make portfolio allocation very difficult. 

Ken talks about two key questions to answer before investing in bitcoin.


You couple this with the fact that bitcoin was maturing at that time and all the infrastructure behind bitcoin and that allowed the trading of bitcoin, that was all brand new as well. So, you have this thing that’s evolving around all of this noise. And so, it’s really hard to make any inferences about how bitcoin is going to act relative to stocks or to bonds or all of that, for me, has to go out the door. So, you have to really think about this as a speculative asset. And the two key things that you need to think about when you do that is first your initial allocation. That’s the first step in mitigating risk is, how much would I be willing to risk without impairing my ability to meet my financial objectives? That’s for the individual investor to determine. And then how do I manage risk on an ongoing basis?

What does this mean for investors?

The price of bitcoin may just boil down to what someone will pay for it. That depends on what’s happening in the world and in the world of crypto. There’s a strong speculative undercurrent to bitcoin and cryptocurrencies in general. If everyone thinks the price should go up, it tends to go up.

The opening of bitcoin-related ETPs may be fueling some of this speculation. But it also gives the common investor easier access to a previously hard-to-access asset that may boost the return potential of a traditional stock and bond portfolio.

Ashley and Ken discuss how ETPs have made bitcoin access easier


But I think that for the average investor, this sort of packaging, it’s important. Cryptos, otherwise, they’re quite challenging to access in a way that is secure, reliable, compliant, and to do this in a way that’s cost-effective. So, cryptos wrapped in an ETF, they really offer a meaningfully easier way for the average investor, the average client, who wants bitcoin exposure to be able to access this space. Whereas those sorts of previous offerings, they required more paperwork and oftentimes partnering with crypto-specialized firms and services that really offered a host of complications and added costs. So, I think that this wrapper, this packaging, of the ETF is attractive because it’s more familiar and it’s easier to work with at the end of the day.


One of the things that asset managers have done throughout history is provided access to difficult-to-access assets. So, the whole notion of pooling investments, that was asset managers actually started those things and it made life a lot easier for investors to get access to diversified pools of assets.