Bitcoin fell to five-month lows this week before recovering some of its losses at Thursday close. While volatile, the cryptocurrency demonstrates notable return potential over longer periods, making it worth consideration in all-weather portfolios.
The temptation to dismiss bitcoin (BTC) out of hand is likely a strong one for many advisors and investors. It’s an asset that carries an elevated risk profile at a time when many investors are becoming risk averse. BTC is down year-to-date, while gold is up. It also remains a highly volatile asset, while gold continues to prove stable.
That said, the diverging performance of the two over the last year demonstrate the diversification potential that BTC brings to portfolios. It is a dynamic asset that remains highly responsive to the current market environment. While this sometimes results in sharp drawdowns, it just as often leads to sharp upswings.
CoinShares ran a series of calculations last year where they incorporated bitcoin into a number of different portfolios. Amongst those was an all-weather portfolio based on Ray Dalio’s model, meant to perform across every economic environment. The portfolio was comprised of 30% equities, 40% long-term bonds, 15% medium-term bonds, 7.5% natural resources, and 7.5% gold. The team replaced gold with BTC and ran performance for both portfolios from Jan 2017 through May 2024.
The replacement resulted in the Sharpe ratio improving significantly, from 0.33 to 1.38. Furthermore, annual returns skyrocketed, with the bitcoin portfolio producing annualized returns of 19.1%. In comparison, the all-weather portfolio with gold generated annualized returns of 6.5%. Correlations also dropped, from 71.1% in the gold portfolio to 62.3% in the BTC portfolio. Volatility did increase for the bitcoin portfolio, at 11.2% compared to 8.3% for the portfolio with gold.
Bitcoin Investing With BRRR
While gold remains a stable and lucrative investment this year, it’s worth considering including bitcoin alongside gold in your all-weather portfolio. The potential for diversified performance, albeit with elevated volatility, could prove attractive for those investors with the risk appetite.
The CoinShares Valkyrie Bitcoin Fund (BRRR) provides exposure to bitcoin’s price movements with the ease of access through traditional brokerages. The fund offers differentiated performance over the last year compared to gold, making it worth consideration for those investors seeking to diversify their portfolio.
BRRR seeks to reflect the price performance of the CME CF Bitcoin Reference Rate – New York Variant, minus fees and expenses. This Index uses the same six bitcoin exchanges as the CME CF Bitcoin Reference Rate but calculates bitcoin’s price at New York Market close (4 pm ET).
The fund is a Trust that passively holds bitcoin (meaning it’s physically backed). Shares held are tied to the value of the bitcoin held. It also is not an investment company, and therefore does not fall under the 1940 Act. The bitcoin held is custodied by Coinbase, BitGo, and Komainu, with private keys kept in cold storage. In other words, the means to access the bitcoin held by the custodians remains offline, disconnected from the internet. This helps protect the cryptocurrency from hacking.
BRRR carries management fees of 0.25%.
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