The article appeared in the printed business section of Morgunblaðið on December 13th, 2023. 

After decades of falling interest rates and low inflation, rates have started to rise following the resurgence of inflation in the United States for the first time in 40 years. Inflation prospects for the next ten years are much higher than we have been accustomed to over the last decade.

Investors continually consider adjusting their portfolios, and historically, bonds have played a large role as the traditional 60/40 portfolio, comprising 60% stocks and 40% bonds, has been prevalent in the United States for decades.

Changing inflation prospects have a significant impact on the bond market, and history tells us that bond investors generally lose substantial amounts in real value in an inflationary environment. Inflation ran hot in the United States in the 1950s after World War II and in the 1970s. During both periods, bond investors suffered substantial losses.

It is natural to wonder how investors could protect their purchasing power in such an environment, but the best way is to own hard assets. Gold is one of the most recognized hard assets, a rare metal that requires energy and labor to extract from the earth. The price of gold increased fifteenfold from its lowest to highest point between 1970 and 1981, which was beneficial for those investors holding gold. In contrast, bond investors faced devastating losses during this period.

The world continues to evolve, and in 2008, a new invention called Bitcoin emerged, a new monetary system based on a predictable and immutable issuance schedule where the total number of units will be 21 million. To date, about 19.5 million units have been issued. It operates on a decentralized system where transactions can be sent over the Internet without centralized authority or company involvement. The Bitcoin system has now been operating continuously for almost 15 years. It is the most secure network in the world, secured by millions of computers worldwide whose purpose is to compete to verify transactions online and receive rewards in the form of the cryptocurrency Bitcoin.

It has taken time for Bitcoin to prove itself as a legitimate investment option, but now many of the world's largest asset management houses are starting to take Bitcoin seriously. Asset management companies such as BlackRock, Fidelity Investments, Franklin Templeton, and nine others have applied for permission to establish a so-called Bitcoin exchange-traded fund (ETF) with the U.S. Securities and Exchange Commission.

Larry Fink, CEO of the world's largest asset management company, BlackRock, has spoken very positively about cryptocurrencies and believes that cryptocurrency markets are the digital equivalent of gold and an option for investors against the depreciation of traditional currencies. He said that Bitcoin is an international asset and a real investment opportunity for investors today who want to invest in non-traditional asset classes.

Investors are beginning to see Bitcoin as digital gold due to the properties Bitcoin possesses. Like gold, new Bitcoin units cannot be produced without using energy, and this is important because energy cannot be obtained from nothing, i.e., it is not possible to cheat on energy no matter where you are in the world. This fact is quite different from what we know in the traditional monetary system, where an infinite amount of money can be produced without work being required. It can be argued that hard assets will play an important role in the upcoming economic environment where loose fiscal policies around the world and unrestrained money printing are likely to continue. Moreover, the world's largest investors are finally starting to invest in Bitcoin, which increases the likelihood of significantly enhancing Bitcoin's trust and value in the coming years.