Skip to main content

The Carlyle Group(CG-Q)
NASDAQ

Today's Change
Real-Time Last Update Last Sale Cboe BZX Real-Time

This Billionaire Investor Loves Bitcoin. But Is It Right for You?

Motley Fool - Fri Aug 18, 2023

Billionaire investor David Rubenstein, co-founder of investment firm Carlyle Group Inc.(NASDAQ: CG), recently appeared on Bloomberg TV, talking about the case for investing in Bitcoin(CRYPTO: BTC). Like many investors, he regrets not buying Bitcoin when it was trading for just $100. Though Bitcoin is well off its all-time highs, its current price of nearly $30,000 means it would have generated 300-fold returns for early crypto investors.

The good news is that there might still be time to participate in Bitcoin's upside potential. According to Rubenstein, there are at least two key factors that should be on your investment radar screen right now because both have the potential to send Bitcoin soaring.

Institutional adoption of Bitcoin

Even just a few years ago, it would have been difficult to find any large institutional investors making the bullish case for Bitcoin. Back in 2020, Bitcoin was still viewed as a highly speculative asset with the potential to collapse to zero overnight. But a lot has changed since Bitcoin went on its epic rally to reach a high of almost $69,000.

Bitcoin logo on Wall Street.

Image source: Getty Images.

According to Rubenstein, mainstream institutional investors have now bought into the concept of Bitcoin. And the best proof of that, says Rubenstein, is the recent decision by BlackRock Inc.(NYSE: BLK), the world's largest asset manager, to seek regulatory approval to launch a new spot Bitcoin exchange-traded fund (ETF). As Rubenstein told Bloomberg, "If the mighty BlackRock is willing to have an ETF in Bitcoin, maybe Bitcoin is going to be around for a while."

Thus, the future upside scenario for Bitcoin now has to include institutional adoption as a factor. This adoption includes Fidelity Investments adding Bitcoin 401(k) options for employee retirement plans, asset managers like BlackRock creating new spot ETFs, and Wall Street's biggest firms creating new Bitcoin-based financial instruments.

All of this, of course, could lead to institutional investors allocating a greater percentage of their portfolios to Bitcoin. That would potentially have a huge direct impact on the price of Bitcoin. We already saw a preview of this back in June. As soon as BlackRock announced plans for a spot Bitcoin ETF, the price of Bitcoin jumped overnight.

International demand for decentralized currencies

Another key factor for Bitcoin, says Rubenstein, is the growing demand worldwide for a decentralized currency beyond government control. If you've been following the debate over central bank digital currencies (CBDCs), you probably realize that the world is in the midst of a huge transition from paper-based currencies to purely digital currencies created by central banks.

The concern here, though, is that future governments will have the ability to see exactly what you're buying and how much money is in your account. Everything will be on the blockchain to see, unlike today's cash-based system, where you can still hide money under your mattress.

If you're a law-abiding citizen in the U.S., this might not seem like a major concern. But, says Rubenstein, the real demand is coming from overseas. Citizens are very concerned about the privacy of their transactions, and they want the ability to move their funds around without the government having complete transparency into what they're doing. In a worst-case scenario, governments could turn off the digital bank accounts of certain citizens who have fallen out of favor with the state or limit the ability to purchase certain items the government does not approve of.

Bitcoin plays an important role here as a way of offering anonymity to consumers and providing a way to move funds around on a peer-to-peer basis without financial intermediaries. In the Bitcoin valuation model used by Ark Invest, super-investor Cathie Wood specifically notes "seizure-resistant asset" as one of the eight primary use cases of Bitcoin. As a result, Ark Invest believes this unique property of Bitcoin adds to its overall valuation.

Bitcoin issues

Given crypto's historic volatility, there is still quite a bit of risk involved in buying Bitcoin now. As Rubenstein points out, the Securities and Exchange Commission's lawsuits against major cryptocurrency exchanges could have a chilling effect on crypto adoption. And the politicization of the cryptocurrency issue within Congress means long-term investors might have to wait out unfavorable legislative or regulatory environments.

Over the long haul, though, Bitcoin is here to stay. Billionaires and institutional investors are now backing Bitcoin, and it's safe to say that's a very favorable development. It might take more time than originally expected for Bitcoin to reclaim its all-time highs, but I remain very bullish on its future upside potential.

10 stocks we like better than Bitcoin
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Bitcoin wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of August 14, 2023

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.