The December 2019 investor newsletter from Bitwise Asset Management details how four features that are rarely combined in a single investment come together in cryptocurrency.
- High potential returns
Bitcoin has doubled since the start of the year and is up nearly 1,000% over the past three years.
- Extremely low correlations to other assets
- Liquidity
- Equal access for any type of investor
While the researchers confirm that the world’s most popular cryptocurrency is a highly volatile and risky asset, Bitcoin is still in its infancy and its value will increasingly be assessed against a wider economic landscape with various financial investments facing new pressures.
“And while past performance is no guarantee of future results, bitcoin’s 10-year track record suggests it’s here to stay, and many believe it’s just getting started.”
According to the report, entitled “Crypto’s Role In A Diversified Portfolio,” even a small crypto investment can have a “revelatory” impact on a portfolio.
“Despite the volatility that crypto experienced, adding a 2.5% allocation to the Bitwise 10 over [Jan. 1, 2017 through the end of Q3 2019] boosted the portfolio’s returns by 50% without increasing risk. A 1% allocation boosted returns by 18% while reducing the portfolio’s overall volatility.”
Analyzing the absolute worst one-year period, from December 25, 2017 through December 25, 2018, the report reveals that despite the market plunge, a portfolio with a 1% allocation to the Bitwise 10 outperformed a standard 60/40 portfolio – if only by a hair, falling -8.97% compared to -8.98% for the traditional portfolio.
The report concludes that investors were better off with crypto in their portfolio than without it, based on the daily liquidity that crypto offers and the unique combination of non-correlated returns.
“As we enter the new decade and more investors come to grips with the challenges facing traditional stocks and bonds going forward, we think they will increasingly turn toward alternatives, and specifically toward crypto, because the portfolio impact can be significant.”
You can check out the full investor letter here.
