Unchained
How does the bitcoin source code define its 21 million cap?
Many of bitcoin’s staunchest critics have expressed doubt about its 21 million cap, but perhaps the most mindless criticism relates…
,This article is provided for educational purposes only, and cannot be relied upon as tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and all such questions should be directed to a tax or financial advisor of your choice. Statements regarding market or other financial information, are obtained from sources that we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.
Bitcoin has surged to become a top-performing asset class of 2023, up as much as 83% year-to-date. In this article, we’ll look at bitcoin’s performance this year, what could be driving the upward trend, and consider the broader implications of bitcoin’s performance.
Bitcoin’s 2023 run-up
Starting the year near a multi-year low of just over $16,000, bitcoin has seen generous returns in 2023, outpacing many other asset classes and capping Q2 2023 with an impressive 70% price increase. In more than one report to clients this year, Goldman Sachs named bitcoin the best-performing asset in total and risk-adjusted returns.
The most recent rally this year has been partly fueled by speculation surrounding many applications for bitcoin “spot” ETFs, led by BlackRock, with other firms hoping to capitalize on the opportunity of a shifting regulatory tone around the product; Bitwise, Invesco, WisdomTree, Fidelity, and Valkyrie also submitted applications.
Additionally, as of July 2023, inflation slowed to its lowest year-over-year levels since early 2021, instilling confidence in investors, leading them to believe that the Federal Reserve would halt interest rate hikes and implement rate cuts to ward off a possible recession.
Bitcoin and other asset classes
This optimism surrounding the potential for reduced interest rates has also spurred significant growth in the information technology sector, which has surged by an impressive 40% year-to-date, with the Nasdaq 100 and Russell 1000 Growth Index following closely behind at 38% and 27%, respectively. Bitcoin’s favorable comparative return over a similar time period, even when adjusted for risk with a Sharpe Ratio analysis, could spur a productive conversation with a qualified investment advisor about whether to make a portfolio allocation to bitcoin.
A 2019 study in the International Review of Financial Analysis1 showed that bitcoin improves portfolio performance when added to a diversified portfolio. This finding has been corroborated by a recent Fidelity analysis2, which showed that bitcoin “has the potential to enhance portfolio diversification.”
Further growth into 2024?
As inflation slows and bitcoin recovers from its cycle lows, many investors wonder what the price action will look like for the rest of this year and into next year. Notably, the next bitcoin “halving” is expected to occur sometime in April 2024, which will see the block subsidy—the amount miners are rewarded for successfully mining a block on top of transaction fees—cut in half from 6.25 to 3.125 bitcoin.
Historically, the halving event has preceded a broader bullish trend, as the supply shock makes waves through the market, attracting attention to the asset class and investment in the surrounding ecosystem. This has historically caused a positive feedback loop for the price, where more significant investment in both bitcoin and the bitcoin-adjacent industry has led to even greater awareness of the asset and its potential.
One of the mechanisms by which demand quickly outstrips supply with each cycle can be seen empirically in our HODL Waves data analysis, which shows waves of people coming to be aware of bitcoin, learning about bitcoin, and holding bitcoin for ever-increasing periods of time. Our related research, HODL Cave, charts the spread of historical returns for investors who held bitcoin for given durations throughout its history, highlighting the consistency of returns for long-term holders.
Don’t regret selling; borrow instead
Given these performance metrics, demand for Unchained’s loan product has naturally increased. The current macro environment and bitcoin’s outperformance against the other top asset classes have led many customers to favor borrowing against their bitcoin holdings instead of selling. Below, you can find some thoughts from Dhruv Bansal, our co-founder and CSO, who shares insights on the thoughtful design choices and tradeoffs guiding the structure of this product.
This article is provided for educational purposes only, and cannot be relied upon as tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and all such questions should be directed to a tax or financial advisor of your choice. Statements regarding market or other financial information, are obtained from sources that we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.
Unchained Capital, Inc. is not a bank. Loans may be originated by Lead Bank and subject to approval. Rates and fees vary by term lengths between 90 and 360 days. All loans have a maximum loan-to-value ratio based on required bitcoin collateral. Fees may be assessed on overdue amounts. A loan application is required. May not be available in all states and may be subject to local restrictions where available. California loans may be made or arranged by Unchained pursuant to a California Financing Law license. To learn more about Unchained’s licensing, see our legal and regulatory page.
Lead Bank is an FDIC insured Missouri state-charted bank. Lead Bank is an equal opportunity lender.
1Anton Kajtazi, Andrea Moro. (2018, October 11). The role of bitcoin in well diversified portfolios: A Comparative Global Study. International Review of Financial Analysis. https://www.sciencedirect.com/science/article/abs/pii/S1057521918305118
2Fidelity Viewpoints. (2023, January). How bitcoin may impact your portfolio. Fidelity Viewpoints. https://www.fidelity.com/learning-center/trading-investing/bitcoin-investment-considerations