Bitcoin mania is making investors ignore other assets that have far more upside potential, an investment chief says

Bitcoin symbol at Bitcoin conference people
A mural designed by Stacey Coon, Anastasia Sultzer, and Nanu Berks is seen at the Bitcoin 2021 conference.

Investment adviser Rich Bernstein said in a CNBC interview Monday that bitcoin is a bubble, and crypto mania is making investors ignore other asset classes that have more potential.

Institutional acceptance of bitcoin and other major cryptocurrencies has led to mainstream adoption, making it one of the most trending alternative assets. The fear of missing out on the cryptocurrency buzz led to a jump in the number of crypto wallets to 73 million in May this year, from about 49 million at the same time in 2020, according to data from Statista.

“It’s pretty wild,” Bernstein, the CEO and CIO of Richard Bernstein Advisors, told CNBC’s “Trading Nation.” “Bitcoin has been in a bear market, and everybody loves the asset. And oil has been in a bull market, and it’s basically, you never hear anything about it. People don’t care.”

According to the star investor, oil is the most ignored asset class and commodity traders have good reason for optimism.

“We’ve got this major bull market going on in commodities, and all people are saying is that it doesn’t matter,” he said.

Bitcoin was last trading 1.3% higher at around $39,815 as of 7:55 a.m. ET on Tuesday, but it’s fallen more than 36% in the past two months. Brent crude rose 1.2% to $73.75 and West Texas Intermediate rose 1.4% to $71.90. Both are up 97% and 89%, respectively.

By officially establishing itself as an asset class, the most popular digital asset has had a historic year as Wall Street titans like Goldman Sachs opened its trading floor to it. But Bernstein thinks bitcoin’s bull run isn’t sustainable in the longer term.

Investors could suffer portfolio declines over the next two to five years if they overlook other asset classes, he said. “The side of that see-saw you want to be on is the kind of pro-inflation side which most people are not investing in,” he said.

Bernstein listed energy, materials, and industrials as his top bets “because that’s where the growth is going to be” within the next six to 18 months.

Read More: Goldman Sachs says buy these 37 stocks that will offer strong returns with minimal risk through year-end as growth names regain leadership

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Tesla ditched bitcoin payments but it’s still the 2nd-biggest corporate holder. 6 experts break down why its holding poses major risks to investors.

Tesla CEO Elon Musk with a hardhat.JPG
Tesla CEO, Elon Musk.

  • Tesla is the second-largest bitcoin owner despite its concerns over the climate impact from the mining process.
  • Digital assets, including established ones like bitcoin, are highly volatile over the short-term.
  • Six experts told Insider why bitcoin investments expose major risks to corporate investors.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Tesla holds 43,200 bitcoins, currently worth about $1.52 billion, according to This makes the electric vehicle maker the second-largest corporate bitcoin owner after technology firm MicroStrategy.

The cryptocurrency market was spooked in recent weeks by a combination of Elon Musk suspending bitcoin payments, China banning financial institutions from maintaining crypto practices, and Japan’s central bank governor warning about its volatility.

Tesla’s announcement in February that it had poured $1.5 billion into the digital asset excited investors initially, but the recent volatility in bitcoin highlights risks to shareholders. Some question whether Tesla’s purchase was a good use of corporate cash.

Six experts told Insider why companies, including Tesla, can’t rely on cryptocurrencies as sound corporate cash investments.

Risk to investor protection duty

“Companies that hold large amounts of their cash in bitcoin are breaching their fiduciary duties to shareholders, plain and simple. If an investor wants exposure to bitcoin, he or she should buy bitcoin. Corporate cash should be used for funding growth and/or returning capital to shareholders. How can you plan to fund those initiatives if your ‘cash’ (bitcoin holdings) is fluctuating as much as 10% in a day?” – Marc Lichtenfeld, chief income strategist at The Oxford Club

“While some investment strategies recommend a small percentage (2%-5%) of the total portfolio for investment purposes, we are a long way from using cryptos for transaction purposes, and so is not a recommended Treasury management strategy. It is possible that in the future cryptos are accepted as a trade currency similar to fiat and that will reduce ‘volatility’ and enable hedging vs fiat currency for better cash management.” – Sankar Krishnan, executive vice president, Capital Markets and Banking at Capgemini

Read More: A ‘dogecoin millionaire’ explains why the recent drop does not shake his bullishness in the meme coin – and shares his advice for new buyers

‘All the downside, none of the upside’

“Bitcoin is treated as an intangible asset, which means that the declines in value of bitcoin have to be written down and taken as a hit to earnings. Unfortunately for these companies, increases in the value of bitcoin do not flow back into earnings. So they get all the downside, and none of the upside.” – Jerry Klein, managing director at investment firm Treasury Partners

“A great corporate treasurer understands that when you have one of the world’s highest returning assets which is also showing high volatility, you need to analyze how to fit it in. Throwing out the baby with the bathwater never makes sense.” – Matthew Le Merle, managing partner of Blockchain Coinvestors

“Bitcoin and other cryptocurrencies are not legal tender. They are not issued by central banks, and as such their volatility is easily susceptible to speculation and pricing manipulation.” – Felix Shipkevich, special professor of law at Hofstra University

“The crypto market might be here to stay, but my suspicion is like the metamorphosis of a caterpillar to a butterfly, the stability of the crypto market is not here yet. Until that happens, a company investing and taking a long-term position in an unregulated market instrument like cryptocurrencies can not receive my endorsement.” – Sam Onigbanjo, a founding partner of the Capital Markets Academy, London

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Elon Musk says Tesla sold 10% of its bitcoin to show it’s a good alternative to cash – but he isn’t selling his personal holding

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Tesla CEO, Elon Musk.

Tesla chief Elon Musk said on Tuesday the electric vehicle maker sold 10% of its bitcoin holdings to prove it’s a good substitute for cash.

He was responding to comments from Barstool Sports founder Dave Portnoy, who questioned whether Tesla had profited from a bitcoin pump-and-dump scheme – a practice that encourages investors to boost the price of an asset based on exaggerated statements.

Tesla disclosed on Monday that it cashed out $272 million worth of digital assets in the first quarter of 2021, making more than $100 million in profits from the sale. The automaker’s first-quarter earnings showed continued profitability, as revenue rose 74% compared to the same period of 2020.

After the earnings report, Portnoy tweeted: “So am I understanding this correctly? @elonmusk buys #bitcoin. Then he pumps it. It goes up. Then he dumps it and make a fortune. Listen I own 1 #Bitcoin but #bitcoin is exactly who we thought it was. Just don’t be last 1 #HODLing the bag.”

Musk rejected his opinion, responding with: “No, you do not. I have not sold any of my bitcoin. Tesla sold 10% of its holdings essentially to prove liquidity of bitcoin as an alternative to holding cash on balance sheet.”

Portnoy said earlier this year he would never buy bitcoin, but has now changed his stance and calls himself a “true believer” in the cryptocurrency.

On an earnings call with investors and analysts, Tesla’s chief financial officer Zachary Kirkhorn said the company plans to continue adding bitcoin to its balance sheet from vehicle sales.

Registering a $101 million gain from selling 10% of its bitcoin holdings over the quarter accounts for $0.25 per share of the $0.93 per share reported earnings, Deutsche Bank strategists said. Meanwhile, topping Wall Street estimates qualifies Musk for two options payouts worth a combined $11 billion, according to Reuters.

Musk himself has not been open about how much bitcoin he personally owns, but his latest tweet seems to suggest he’s not planning to sell it.

Bitcoin rose above $54,500 on Tuesday, rising 16% from a low of around $47,200 last week. Tesla shares fell 2.5% in pre-market trading, as some analysts said simply meeting Wall Street expectations was rather underwhelming.

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Bill Gates says he’s not bullish on bitcoin as it uses ‘a lot of energy’ – and warns people who aren’t as rich as Elon Musk against buying into the boom

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Bill Gates.

Bill Gates, the world’s third-richest person, is not a fan of bitcoin, partly for environmental reasons. 

According to the billionaire, not only does bitcoin use a lot of energy, it can also cause trouble for investors who may not have much money to spare, given how volatile its price is.

“Elon has tons of money and he’s very sophisticated, so I don’t worry that his Bitcoin will sort of randomly go up or down,” Gates told Bloomberg in an interview. “I do think people get bought into these manias, who may not have as much money to spare, so I’m not bullish on Bitcoin, and my general thought would be that, if you have less money than Elon, you should probably watch out.”

Bitcoin fell 13% on Tuesday, to around $46,817, tumbling from a record of $58,354 struck just two days ago, as investors took profit on the near-doubling in price since the start of the year.

Philanthropist and climate activist Gates, whose book “How to Avoid a Climate Disaster” recently went on sale, has previously said cryptocurrencies have caused deaths in a fairly direct way. He also thinks the anonymity behind bitcoin transactions isn’t a good thing.

“The Gates Foundation does a lot in terms of digital currency, but those are things where you can see who’s making the transaction,” he said in the Bloomberg interview. “Digital money is a good thing, that’s a different approach.”

Treasury Secretary Janet Yellen has also been vocal about her doubts on cryptocurrencies, and their environmental impact, given the amount of power used in mining digital tokens.

“I don’t think that bitcoin is widely used as a transaction mechanism,” Yellen told the New York Times on Monday. “It’s an extremely inefficient way of conducting transactions and the amount of energy that’s consumed in processing those transactions is staggering.”

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The best time to buy bitcoin was ‘yesterday’ and allocating 4% of a portfolio is a good bet, a chief strategist at CoinShares says

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  • The best time to buy bitcoin was “yesterday” and the second best is “today,” a chief strategist told CNBC.
  • Investors should consider a 4% allocation of bitcoin to their portfolios, Meltem Demirors said.
  • “A 4% allocation to bitcoin balances the reward, as well as the risk of drawdowns.”
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The ideal time to invest in bitcoin has already slipped by, according to Meltem Demirors, chief strategy officer at digital asset investment firm CoinShares.

“The best time to invest in bitcoin was yesterday – the second best time to allocate is today,” she told CNBC’s “Squawk Box Asia” on Monday.

Demirors believes regulatory concerns around cryptocurrencies, which have been around for a long time, are unlikely to thwart investor plans to allocate bitcoin to their portfolios. “At this point, our belief is: Bitcoin is not a question of if, but when,” Demirors said.

The size of the Bitcoin market recently shot past $1 trillion as it hit a record high of $58,354. The digital token was trading lower around $52,976 on Monday, but it has still gained 92% year-to-date. A flurry of adoption by major Wall Street players and large companies such as Tesla, Bank of New York Mellon, and Mastercard has added to its epic rally this year. 

That said, Demirors said investors should not allocate significant portions of bitcoin to their balance sheets.

“Our research has found that in a traditional 60-40 portfolio, a 4% allocation to bitcoin balances the reward as well as the risk of drawdowns,” she said. The 60-40 portfolio mix is considered the simplest strategy for those investors who want diversified streams of income. It involves placing 60% in equities and 40% in fixed income.

Will Hobbs, an investment chief at Barclays, is more skeptical about bitcoin. He told Insider the digital asset sounds “increasingly cultist” and a rise in interest rates could dent the world’s most popular cryptocurrency. Hobbs said Barclays considers two factors in asset allocation – positive expected return and diversification appeal. 

“Now it may well be over time that bitcoin satisfies both of those. But at the moment it’s very hard to say,” he said.

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Bitcoin miners raked in more than $1 billion in combined earnings last month. Here’s how they make money.

Bitcoin miners earned a combined $1.1 billion in January.

  • Bitcoin mining is the process that allows new coins to enter circulation, adding to the crypto ecosystem.
  • Miners receive bitcoin as a reward for verifying “blocks” of transactions on the blockchain.
  • Last month, they earned more than $1 billion in combined earnings. Here’s how they do it. 
  • Visit the Business section of Insider for more stories.

Bitcoin is created on a decentralized network called the blockchain, where a vast network of digital “miners” work to verify transactions at any given time.

These miners earned a combined $1.1 billion in January, up 62% from December, when bitcoin’s price surged to $42,000. The road to making this amount of money is no easy feat.

What do bitcoin miners do?

Miners have the responsibility to audit transactions on the blockchain to ensure the legitimacy of the network. They also work to avoid the “double-spend” scenario, in which a bitcoin owner could sneakily spend the same coin twice through duplication or falsification.

Miners don’t necessarily work as a team. They work to compete with each other in order to add the next “block,” or a record of all bitcoin transactions, to the chain. A block contains a partial record of the most recent transactions and carries 1 MB (megabyte) worth of data.

The miner who receives a reward would be the first among a bunch to run through hordes of number combinations to solve a numeric problem, known as proof of work, to arrive at an acceptable 64-character code. The code of this winning block helps keep the blockchain secure. It would normally look something like the last line in this image: 

Screenshot 2021 02 19 at 14.43.43

By being the first to solve the equation and successfully adding the next block to the chain, the miner is rewarded a certain amount of bitcoin. Only one such block can be added at a time, and each one takes about 10 minutes to verify and attach.

Over the course of the next 20 years, a total of 21 million coins will be released.

What are the rewards worth?

In 2009, the first time bitcoin was created, miners were rewarded with 50 bitcoin per block. But according to a mandate by Satoshi Nakamoto, rewards for mining are halved every four years. The rewards were cut to 25 bitcoin by 2012 and to 12.5 bitcoin by 2016.

As of February 2021, miners gain 6.25 bitcoin for every new block mined – equal to about $330,475 based on current value. They’re also allowed to keep the transaction fees from each trade carried out on that block, which is worth $20 per trade.

An estimated 1 million bitcoin miners are in operation, at present.

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