More and more single-family offices are making investments in the digital currency Bitcoin, a trend we’ve taken notice of at Capital Hedge via our FINTRX Platform. Bitcoin is unlike traditional currencies, in that it’s “mined” by individuals and companies running sophisticated computers solving mathematical problems. Some of the characteristics that define Bitcoin include:
• It is decentralized -- there are not any institutions controlling the currency.
• It is transparent thanks to blockchain technology.
• It provides a faster way to transfer funds, and transaction fees are diminutive.
While bitcoins are used in a “traditional” sense as currency to procure services and products, they’re also presenting themselves as a potential asset class, notably in the single-family office space. From Angelo Robles, founder and CEO of the Family Office Association: “We’re seeing a growing number of single-family offices – especially those with greater assets – invest in… bitcoin. There are a number of overlapping rationales for [this]. For example, there’s a fixed supply of bitcoins, more businesses are accepting the currency, and more and more investors from hedge funds to institutional players are looking at bitcoins as a way to diversify a portfolio.” Bitcoin’s flexibility, in the digital age, has the makings of a valuable investment prospect.
Bitcoin investments aren’t without risk, however, which potential investors should always be aware of. “Investments in Bitcoin and its related assets... can provide diversification, but investors need to understand the risks,” remarked David Berger, Chairman of the Digital Currency Council. “Bitcoin will have a binary outcome – it’ll either be a grand slam or it’ll crash – and there will be lots of volatility along the way. I don’t view Bitcoin as suitable for a family seeking wealth preservation, but see it more similarly to a high risk high reward venture investment and as a way to diversify a portfolio.” As it is, as Bitcoin develops and carves out a space for itself as an asset class, the investment capacity in it is apparent, but there is always potential risk involved.
“While a growing number of single-family offices are investing in bitcoins and other decentralized digital currencies, some are choosing to invest in companies that are building the technology and infrastructure,” says Berger. “The ecosystem developing around this new asset class is growing very quickly.”