'Volatility is your friend': A former Goldman Sachs hedge-fund boss says crypto investors should embrace bitcoin's wild price swings - and explains why it's one of the asset's key features
- Cryptocurrency investors like bitcoin's volatility, according to Real Vision founder Raoul Pal.
- Volatility is a key feature that has helped bitcoin see an explosion in value since its inception, according to Pal.
- "I think you can't avoid the fact that it's the best performing asset class in all recorded history already," he said.
Raoul Pal - a former Goldman Sachs hedge fund manager and current founder/CEO of Real Vision TV - suggested at a virtual event this week that bitcoin's volatility shouldn't scare investors. He instead argued that it should be looked at positively.
"It's a feature that drives the risk-reward," Pal said at an "Investing in Crypto" conference hosted by MarketWatch. "So without that volatility, you can't have compounded annual returns of 230%. Volatility is your friend in this occasion."
Bitcoin hit an all-time high of almost $62,000 in mid-March, and was last trading just above the $58,000 threshold on Friday. It is up 101% year-to-date, and about 700% over the last 12 months. By comparison, the S&P 500 is up 9% year-to-date and 47% in the last 12 months.
Pal has previously predicted bitcoin will be worth $1 million in five years.
"The volatility is highly skewed to the upside, doesn't mean you don't get sharp downside shocks and you can't see big moves," Pal said, adding that bitcoin has seen a massive appreciation since its inception and that's what investors want in risk-seeking assets.
The digital asset's volatility fell nearly 40% on a monthly basis to a three-month low in March, with a knock-on effect on trading volumes, which fell 5% to a year-to-date low of about $255 billion, according to data from Kraken.
Earlier this month, JPMorgan said a decline in bitcoin's volatility has made it more attractive to institutions and that could boost its adoption.
But according to Pal, institutional investors, sovereign wealth funds, and pension funds are more taken by bitcoin's ability to generate top returns within a portfolio, rather than being put off by its volatility.
"Everybody is getting involved, is involved, or is in the due diligence process of doing it," he said. "I think you can't avoid the fact that it's the best performing asset class in all recorded history already, and it is the best performing asset over any period of time."
The former hedge fund manager said most people in the crypto world don't like regulation, but he is in favor of it as long as it is a "light-touch" oversight that allows people to build on innovation. He doesn't expect crypto regulation to hurt prices, but to instead attract more capital in the space and provide confidence to people in the industry.