I agree about portfolio construction but you still need to place assets into buckets to understand what you're buying, and what it might contribute to a portfolio beyond just the backtest numbers. A 'store of value' to me is something with a combo of low volatility, low 'tail risk' (political, counterparty, technological disruption, etc), and preservation of real purchasing power over long periods. The closest thing to this in a single asset would be super-prime residential real estate (physical land) in major global cities. The next tier would be gold and inflation-linked G7 bonds.
Gold dropped by 50% real after its peak in 2011 to its through in 2016, thats half of your money in 5 years. It also dropped by 83% real after its peak in the early 80's. Bonds (whether linked to inflation or not) also have significant issues such as survivorship bias when people look at the historical record of the asset class. If you look around in the Credit Suisse Year End book, there are many big countries in which bond investors were wiped out (and the inflation link would make little difference). Situations that some people dont seem to be aware of. Like France bond wipeout during WW2. Or China as well.
In fact, lots of bonds countries in WW2 were wiped out. Or the fact that in the last 100 years, Japanese bond investors had a net negative real return. I actually agree with the super-prime real estate idea (although, I wouldnt limit it to just land), its very similar to owning a diversified portfolio of different asset classes. But how much value can be stored there? $10T or something, so its not enough for the whole world
BTC is obviously a poor store of value because it has very high volatility, very high existential risks, and (unlike gold) only a very short history to show how it behaves over time and in relationship to other asset classes. So, in a "barbell" portfolio BTC would have to be in the 20% high-risk, high-return portion, not the 80% safe portion.
It could belong on the high risk portion but also it could belong in the safe portfion as a HEDGE for gold. Its superior to gold in a number of ways and given that software is eating the world
https://a16z.com/2011/08/20/why-software-is-eating-the-world/ in my view it is irresponsible for large gold investors not to own the hedge to the asset that they hold. An asset that had no problem destroying a lot of value in the past. It goes along with the idea that risk is everywhere and sometimes by taking more risk you actually end up with less risk
But does it really belong in that high-return segment? BTC has a history of exponential price runs but there's obviously a limit to how far the market cap can sustainably rise, and price rises are the only source of return (no divs or buybacks/buyouts). BTC's intrinsic properties most resemble a precious metal, but stocks and other cashflow-generating assets outperform these over time in absolute return and do so for solid theoretical/conceptual reasons.
I believe this will be correct once Bitcoin matures, you are calling the top on its maturity saying it can't go much further. I say if that is wrong, it will be wrong exponentially therefore the threshold for one to believe on that should be very high
In other words, BTC is too risky to be a safe asset but (in my view) lacks the return potential to be worth holding as a risky one. For this reason I concluded some time ago that it's not suitable to be held in any investment portfolio, but certainly is nice to have as another trading vehicle.
And what is safe to own in an investment portfolio? Because if Gold gets disrupted by BTC, that wont be so safe. And bonds, well, the central banks have promised to repress their returns until the cows come home. So what is safe? The whole planet cant buy land in London (is there even such thing? In most large cities that I know of there is no land except in the periphery), there is a scarcity for stores of value and BTC is meeting a lot of people's criteria. The historical record is part of the story but there is also the limited supply, decentralization, better features than gold, etc
In my backtests using US data from 1926 to 2016, US stocks had -76% Max DD (in the 30s, adjusted for the deflation). T-Bills -48%, 10y Bonds -57% (60s and 70's) and Gold -83% (after the early 80's) but what is interesting is that if you combine all these assets at an interesting ratio (30% stocks, 15% gold and 55% 10y bonds) the max DD of the portfolio drops to -25%. Sometimes by taking more risk you actually end up with less. I'm arguing Bitcoin belongs in that allocation and can decrase risks further by being a hedge against bond implosion and gold disruption. The risks of Bitcoin disruption can be hedged further by owning some ETH as well and ETH disruption by be hedged by owning ADA and DOT. Yes, its a lot more work but risks are high so I dont see any other way
