3 Reasons Insurance Companies Should Consider Bitcoin
Why should you, as an Insurance Company, consider Bitcoin as an investment option for your clients? In this blog, we'll explore three compelling reasons.
How does the internet work? For most people, it's a bit like magic. We use it every day, but the intricate science behind it remains a mystery. Yet, if you ever wanted to dive deep into the inner workings of the internet, you could unravel its secrets through dedicated study. In some ways, Bitcoin is a lot like that – a complex phenomenon with a scientific foundation. If you're curious, start with VanEck’s Bitcoin and Digital Assets Education Center and explore Satoshi Nakamoto's white paper to understand the technical intricacies.
While Bitcoin may be younger than the internet, having emerged in 2009, it has now firmly embedded itself in mainstream financial conversations. But why should you, as an insurance company, consider Bitcoin as an investment option? In this blog, we'll explore three compelling reasons:
Historical Performance: A Decade of Remarkable Gains
Investors often seek assets with a history of robust performance, and Bitcoin doesn't disappoint. Despite its infamous volatility, Bitcoin has managed to outshine other asset classes over the past decade. In fact, it has been the best-performing asset class for eight out of the past eleven years.
Let's take a closer look at Bitcoin's historical returns for various holding periods (as of December 31, 2023)1:
- 1 year: 156.62% return
- 3 years: 50.00% return
- 5 years: 999.77% return
- 7 years: 5,147.10% return
- 10 years: 6,172.12% return
These figures underscore the incredible growth potential that Bitcoin has exhibited over time, making it an attractive option for investors seeking high returns.
Bitcoin Has Been the Best Performing Asset Class in 8 Out of the Past 11 Years
Source: Morningstar, as of December 31, 2023. Bitcoin is represented by MarketVector Bitcoin PR USD; US Equities are represented by the S&P 500 TR USD; Gold is represented by the S&P GSCI Gold Spot; Emerging Markets is represented by Fidelity Emerging Markets TR; Real Estate is represented by the NASDAQ Global Real Estate TR USD; US Bonds are represented by Bloomberg US Aggregate Bond USD; Treasuries are represented by the Bloomberg Aggregate Bond Treasury TR USD; Commodities are represented by the Bloomberg Commodity TR USD.
Bitcoin’s Scarce Supply May Increase Its Value Over Time
There will only ever be 21 million Bitcoin in existence.2 This supply cap was designed intentionally and is one of the primary characteristics of Bitcoin.
The price of Bitcoin has rallied leading up to and following a phenomenon known as “halving”, which occurs about every four years, reducing the reward miners receive for validating transactions by 50%. So far, halvings have occurred in 2012, 2016, 2020, with the next one set for around April 2024. If history is any guide, Bitcoin has the potential to perform well through 2025.3
Store of Value: A Digital Gold
Bitcoin's allure as a store of value is grounded in a fundamental economic concept – supply and demand. Unlike traditional fiat currencies, Bitcoin has a fixed supply capped at 21 million coins. As time goes on, the mining process becomes increasingly difficult, making it more challenging to produce new coins. This scarcity mirrors the appeal of precious metals like gold, often considered a long-term store of value. As a result, Bitcoin has garnered attention as a potential digital alternative to traditional safe-haven assets. So, Bitcoin may be a good fit for clients looking to hedge against inflation, preserve wealth over the long term, and diversify their portfolio.
The Future of Bitcoin
Bitcoin, like any established asset, is subject to demand dynamics. In 2023, Bitcoin adoption has grown substantially as it has become more mainstream. Now, more than ever, merchants and businesses are accepting Bitcoin as a form of payment and infrastructure has been built to make it more convenient for the average person to use. The development of user-friendly wallets, exchanges, and marketplaces has removed the technical barriers to entry that existed in Bitcoin’s early years.
Bitcoin interest among institutional investors has also increased. Hedge funds, asset management firms, and endowments are increasingly recognizing Bitcoin’s potential as a store of value and as an effective portfolio diversifier, specifically, when looking through the lens of an uncorrelated asset that has the potential to hedge against inflation. Approximately $50B worth of Bitcoin are now held by ETFs, countries, public and private companies and the approval of spot Bitcoin ETFs only adds to Bitcoin’s allure.
IMPORTANT DISCLOSURES
1 Returns are as of December 31, 2023.
2 Source: Satoshi Nakamoto: Bitcoin: A Peer-to-Peer Electronic Cash System.
3 Source: VanEck Research: The Investment Case for Bitcoin.
Coin definitions
Bitcoin (BTC) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
Index definitions
The MarketVector™ Bitcoin Benchmark Rate is a robust reference price for Bitcoin in USD, based on one hour median weighted prices.
S&P 500 TR is the Standard & Poor's index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 leading companies in leading industries of the U.S. economy.
The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold future. The index is designed to be tradable, readily accessible to market participants, and cost efficient to implement.
Fidelity Emerging Markets Index represents the performance of the MSCI Emerging Market. The index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets.
The Nasdaq Global Real Estate Index is a float adjusted market capitalization-weighted index which includes securities in the Nasdaq Global Market Index that are classified in the Real Estate Supersector according to Industry Classification Benchmark (ICB).
The Bloomberg USAgg Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
The Bloomberg Commodity Index The tracks prices of futures contracts on physical commodities on the commodity markets. The index is designed to minimize concentration in any one commodity or sector. It currently has 23 commodity futures in six sectors.
This content is intended for educational purposes only.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included herein.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital assets.
Digital asset prices are highly volatile, and the value of digital assets, and Web3 companies, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal investment.
Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing.
Digital assets include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3 products.
Web3 companies include but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto technologies.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
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