Bitcoin's IPO Moment: Why Portfolio Allocations Should Increase

Article Summary

• Bitcoin is in an 'IPO' phase, similar to stocks after their initial public offering.
• Opportunity to increase portfolio allocations to Bitcoin due to reduced volatility and increased maturity.
• Shift from 1% to 5% Bitcoin allocations becoming more common among investors.

I often read Jordi Visser's analyses, one of the best macro thinkers, and his latest article was particularly interesting. His article questioned why Bitcoin continues to trade sideways or even decline despite constant positive news like strong ETF inflows, regulatory progress, and increasing institutional demand. Visser argued that Bitcoin is undergoing a 'silent IPO,' transitioning from a crazy idea to a mainstream success story.

Visser points out that when stocks go public, they often trade sideways for 6 to 18 months before starting to rise. For example, Facebook's stock went public at $38 per share on May 12, 2012, and traded sideways for over a year before surpassing its IPO price after 15 months. Google and other high-profile tech startups have seen similar paths.

Visser explains that sideways trading doesn't necessarily mean something is wrong with the underlying asset. It often happens because founders and early employees are realizing their profits. Those who bet on the startup when the risk was extremely high are now reaping huge returns and want to liquidate their positions. This ownership transfer from insiders to institutions takes time, and the price will only resume its uptrend once a balance is achieved.

Visser suggests that this is very similar to Bitcoin's situation today. Those who bought Bitcoin when it was $1, $10, $100, or even $1,000 are now sitting on generational wealth. Now that Bitcoin is mainstream - ETFs trade on the New York Stock Exchange, large companies are building Bitcoin reserves, and sovereign wealth funds are entering - these investors can finally realize their profits.

My takeaway from Visser's analysis is that early adopters are selling their Bitcoin holdings to institutions. This doesn't mean the asset's journey is over, it just means it's entering a new phase. For example, after its IPO, Facebook's stock remained below $38 for a year, but it now trades at $637, up 1576%.

Unlike companies that need to continue to grow after an IPO, Bitcoin doesn't need to do anything once the early founders are done selling. To grow from a $2.5 trillion market capitalization to gold's $25 trillion level, all it needs is widespread acceptance. This is entirely possible and could be faster than Facebook's growth.

As Bitcoin transitions from early adopters to institutional investors and matures as a technology, it no longer faces the same existential risks it did a decade ago. This has been reflected in Bitcoin's volatility, which has decreased significantly since Bitcoin spot ETFs began trading in January 2024. This means that future returns for Bitcoin may be slightly lower than in the past, but the volatility will be significantly lower.

As a result, a 1% allocation to Bitcoin is a thing of the past. More and more investors are designating 5% as a starting point for Bitcoin allocations. Bitcoin is going through its IPO moment. If history is any indication, we should welcome this new phase by increasing our holdings.