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Key Takeaways & Insights

In their latest commentary, the Investment Office outlines important considerations for investing in Bitcoin and why it is premature to consider it a separate asset class.


  • The current environment is fueling a demand for cryptocurrencies.
  • While often viewed as an alternative to gold, there are important considerations for investing in Bitcoin.
  • Given its limited track record, it’s premature to consider Bitcoin as a separate asset class.

After coming into our broader investing consciousness three years ago, cryptocurrencies receded in potential importance when prices declined after the first speculative wave. They’re now roaring back, particularly Bitcoin, which has a 70% market share. The primary driver behind this renewed demand is the continued debasement of global currencies through aggressive money supply growth. The current central bank-engineered financial repression with negative nominal and real interest rates has heightened investors’ need to find alternative stores of value1 to cash. Additionally, it has bid up financial assets to historically high levels.

Bitcoin vs. Gold

Bitcoin has been favorably compared to gold, the traditional hedge against governments’ excessive printing of paper money. Gold’s appeal has always been its limited supply and difficulty to mine. Bitcoin has been dubbed “millennial gold” because of its limited supply of 21 million coins. Plus, it’s difficult for computer programmers to create more coins as that supply dwindles. There are roughly 18.5 million Bitcoins in existence today. If supply is truly limited and beyond the control of central banks, potential investors need only estimate demand to determine value, an admittedly difficult task. The value of real assets, including commodities and cryptocurrencies, is based on the intersection between supply and demand. In contrast, cash-flowing assets are rather easily valued by estimating and discounting the future flows at current interest rates.

The comparison of Bitcoin to gold is valid at face value but subject to some important caveats:

  • The commodities’ speculative nature renders them difficult to characterize as a transactional currency or means of exchange.
  • Unlike gold, Bitcoin can be broken into smaller units with the potential to be used for everyday purchases.
  • The extreme price volatility over the past decade has dramatically decreased Bitcoin’s effectiveness as an alternative to the dollar for basic transactions. For example, if an investor used Bitcoin to purchase a $5 cup of coffee at the end of 2018, the cup would have effectively cost $55, given Bitcoin’s current price. The investor would have been better off using cash for that purchase.

Having effectively dismissed Bitcoin as a transaction currency, it appears investors view it more as a speculative hedge in the same way they have used gold. The real possibility that Bitcoin could take substantial market share from gold could be a major driver of significant appreciation over the coming months and years. To truly compete with gold, longer-term investors need to grow more confident in the cryptocurrency’s limited supply nature.

Some institutional investors at hedge funds, university endowments, and pension plans have begun to consider and utilize Bitcoin as an additional investment asset class with its own unique risk and return profile. They hope it will have a low correlation with the other asset classes in their portfolios. Because the asset has a very limited trading history and has been prone to speculative excess, the allocations have generally been small. Still, it’s an encouraging sign of greater stability in the prospective investor base. To the extent Bitcoin replaces gold as a preferred portfolio holding, the price can continue to appreciate substantially from current levels.

Growing Pains

Given its relative youth, there have been some growing pains with using Bitcoin as an investment. It appears upward of 20% of the Bitcoin in existence has been lost due to creators and owners forgetting their passwords or losing their cold storage devices (e.g., external drives). This is somewhat akin to 18th-century pirates forgetting where they buried their pillaged gold. From a trading perspective, instances of price manipulation have occurred. Moreover, it’s ironic that a vehicle primarily used by climate-conscious millennials consumes tremendous amounts of energy in its digital mining efforts.

Our Perspective

People largely accept that the worldwide supply of gold is limited. And with its commercial use in jewelry and electronics, it is difficult to imagine the price ever declining to zero. In contrast, Bitcoin has no such commercial purpose beyond its role as a currency hedge and potential store of value. Given the astonishing advances in computer technology over the last 50 years, it’s plausible Bitcoin could fall out of favor as the preferred cryptocurrency. If it is eventually replaced or becomes heavily regulated, Bitcoin could be deemed worthless with no other demand sources.

The development of Bitcoin exchange-traded funds (ETFs), like those available for gold, may take some time. More analysis is needed to ensure safe custody and to prevent market manipulation. A few tradable vehicles have been developed that hold Bitcoin in trust, but they usually trade at substantial premiums to the underlying value of the holdings.

Because of its limited track record, we do not yet believe Bitcoin is a separate asset class. Despite some interest as a longer-term investment from some institutions, it is a highly volatile, speculative investment held by short-term, trading-oriented investors. Long-term investors must resist the FOMO (Fear of Missing Out) emotion for the time being. They should wait for more ownership issues to be resolved and for Bitcoin to build a longer track record.

For clients interested in cryptocurrencies, please contact your Cerity Partners advisor to take you through the various ways to participate. Please visit the thought leadership section of for additional investment insights.

1 Store of value refers to an asset with a relatively stable inflation-adjusted price, meaning if you buy it now and save for future use, the purchasing power should be approximately the same.

Meet the Author

Ben Pace

Partner & Chief Investment Officer

Ben is the Chief Investment Officer and a Partner in the New York office. He leads the firm’s Investment Committee and is a member of the Executive Committee. He has more than thirty-five years of experience in investment management. Ben has been featured in the Wall Street Journal and Reuters, and is a frequent commentator on Bloomberg TV and radio, Fox TV and CNBC, appearing regularly on network programs such as Power Lunch, The Closing Bell, Squawk Box, and Worldwide Exchange.

Prior to joining Cerity Partners, Ben was Chief Investment Officer and Head of Global Investment Solutions for Deutsche Bank Private Wealth Management in the U.S. In his role as CIO, he sat on the PWM Global Investment Committee, providing input on the U.S. economy and capital markets. He oversaw the investment strategy and asset allocation for PWM clients in the U.S. As Head of Global Investment Solutions, he brought together PWM’s capital markets and investment capabilities in an effort to provide an effective and consistent experience for clients. Prior to joining Deutsche Bank in 1994, he managed equity income funds for two investment organizations. During his tenure with those institutions, he also served as a securities analyst with a particular emphasis on the financial services and healthcare industries.

He earned his Bachelor of Arts in economics from Columbia University and Master of Business Administration in finance from New York University.

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James Lebenthal

Partner & Chief Equity Strategist

Jim is the firm’s Chief Equity Strategist and a Partner in the New York office. He has over twenty-five years of experience managing investment portfolios, and is a regular contributor on CNBC.

Prior to joining Cerity Partners, Jim served as the Chief Executive Officer and Chief Investment Officer of Lebenthal Asset Management LLC, where he developed, advised and served client relationships. Prior to joining Lebenthal Asset Management in 2007, he was a financial advisor for Goldman Sachs and a partner of investment firm Levy Harkins.

Jim currently serves as the Chairman of the Board of Trustees of Mizzentop Day School and as a Director of the Akin Hall Historical Association. He was a Lieutenant of and qualified as a nuclear submarine engineer in the United States Navy where he was awarded 2 Navy Commendation Medals and 4 Navy Achievement Medals.

Jim holds a BA in molecular biology from Princeton University, an MBA from The Wharton School of Business, and a Chartered Financial Analyst designation.

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Tom Cohn

Partner & Deputy Chief Investment Officer

Tom is the Deputy Chief Investment Officer and a Partner in the New York office. He has nearly ten years of experience in various investment management roles. Tom is a member of the Investment Committee, Investment Manager Selection Sub-Committee, the Compliance Sub-Committee and the Performance Monitoring Sub-Committee.

Before joining Cerity Partners, Tom served as an Investment Analyst at Spero-Smith Investment Advisers where he was responsible for the due diligence and analysis of third-party managers and assisted in global market and asset allocation research. Prior to joining Spero-Smith, Tom worked as a Registered Investment Advisor in Syracuse, NY, where he researched a factor-based investment strategy. He started his career as an analyst in the Corporate Debt Products group at Bank of America in Boston, where he worked on a team that managed the bank’s exposure to a portfolio of middle market and multinational companies.

Tom earned a Masters of Business Administration from the S.C. Johnson Graduate School of Management at Cornell University. At Johnson, he served as a portfolio manager on the Cayuga Fund, a student-run, market-neutral hedge fund. He earned a Bachelor of Science degree in Business Administration from Boston University. Tom holds the Chartered Financial Analyst® designation.

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