11 Dec 2020 3 min read

Bitcoin and crypto-currencies: do you feel lucky?

By Emiel van den Heiligenberg

Discipline and diversification are better bets than speculating on assets with no intrinsic value, in our view.


Roulette table

“You’ve got to ask yourself one question: do I feel lucky?” In answer to Clint Eastwood’s memorable question in Dirty Harry, crypto-currency traders are replying with a resounding ‘yes!’

Bitcoin reached a new all-time high earlier this month. Thus far, it has mostly seemed a private-investor phenomenon, but recently we have seen increased interest from institutions as well. There are many things to like: past returns have been stellar (an annualised return above 100% over the past five years, as the chart illustrates); it has offered some diversifying properties with only a slight positive correlation with risk assets such as equities; and, contrary to many currencies, it has the attraction of limited supply at a time when central banks are printing money.

However, there are also plenty of downsides. Bitcoin has no intrinsic value (at least gold has some industrial properties, and even tulip bulbs could yield a beautiful flower); they are not widely recognised or regulated; it takes the energy of a medium-sized nation to mine a bitcoin so it isn’t very environmentally friendly; and it is very expensive and slow to use in day-to-day transactions.

The first is perhaps the most existential risk: bitcoin could become worthless if a more popular or efficient alternative is found. Central banks could well develop their own crypto-currencies, especially if bitcoin and others become too big and interfere with efficient monetary policy.

It could easily be years before the next bitcoin selloff, but we know how this story is likely to end – and not just because the punks faced by Dirty Harry rarely stayed lucky for long.

At the peak of the 17th century tulip trade in Amsterdam, those paying fortunes for a single bulb were surely speculators who understood that tulip prices had no link to bulbs’ intrinsic value and just hoped to sell them to someone else at an even higher price. Many were successful in the year before the crash in 1637; their quick gains were what drew in others and excited pundits. Does that sound familiar?

I also discuss this topic in the short video below.


Appendix: five-year performance of bitcoin

10/12/2015-09/12/2016 85.415
09/12/2016-11/12/2017 2025.2
11/12/2017-11/12/2018 -79.57
11/12/2018-11/12/2019 114.89
11/12/2019-10/12/2020 151.91


Emiel van den Heiligenberg

Head of Asset Allocation

Emiel is responsible for the overall strategic direction of the team’s investment and business strategy. He claims to have been a promising lightweight rower at university until French fries got the better of him. Reflecting his love for rowing in a team, he firmly believes that excellence can only be achieved by a great team made up of motivated individuals that are also eager to work together. To this end he is the self-proclaimed inventor of the verb 'teaming' to acknowledge that shaping a top team and culture of excellence is an ongoing process. Outside of work-family obligations, Emiel’s spare time is filled by a passion for shark diving and skiing. Prior to dedicating his career to portfolio management in 1996, Emiel worked as a policy adviser in the Dutch Ministry of Finance and he graduated from Tilburg University in the Netherlands ages ago. When not glued to his Bloomberg screens, this Dutch man is hooked on computer games, peanut butter and his favourite dark beer made by Belgian monks.

Emiel van den Heiligenberg