Bitcoin is often known to be volatile, but there are some avenues for reducing that turbulence.
Supply of Bitcoin is dwindling because institutional investors are piling into the market, and many retail investors are holding onto the cryptocurrency for longer periods of time.
Mixing and matching asset classes has proved successful for some looking to integrate Bitcoin into a portfolio.
“In two examples, adding a small allocation to a US large-cap portfolio, as reflected by the Russell 1000® Index, and rebalancing on a quarterly basis, resulted in volatility and maximum drawdowns comparable to those of the Russell 1000 but with excess annual returns over the last five years,” according to FTSE Russell.
Amid low global interest rates and central bank debasement of fiat currencies, Bitcoin is becoming a go-to asset for some high-level investors and companies.
Trimming the Turbulence
“As digital assets such as Bitcoin become more accessible and financial advisors and investors begin to examine this asset more closely, market volatility is often seen as a primary concern. However, when combined with other major asset classes, many investors are finding it can be possible to mitigate digital asset risk using well established and straightforward portfolio construction techniques,” said Martin Howard, head of Digital Asset Research, FTSE Russell.
One of the most often cited knocks against Bitcoin is that digital assets are volatile. While the largest cryptocurrency has had its bouts with turbulence, some investors may be surprised to learn Bitcoin actually has some favorable volatility statistics.
See also: Where the Bitcoin ETF Debate Stands
Bitcoin proponents argue that it is the ultimate alternative asset, combining high potential returns with low correlations and intra-day liquidity. Has that held up during the recent market volatility?
“The global markets are rapidly changing, and financial advisors have a much broader set of opportunity to offer their clients, particularly with the growth of digital asset markets like Bitcoin,” said Tyrone Ross, CEO & co-founder, Onramp Invest. “However, this choice and excitement can lead to confusion and concern without a solid benchmark for context. FTSE Russell’s recent research helps illustrate the value of blending traditional and alternative asset classes in a long-term portfolio.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.