Bitcoin The use cases have evolved quite a bit over the last decade. For many investors, the right amount of exposure to the market for cryptocurrencies and assets like Bitcoin can be extremely useful as a hedge, especially compared to traditional assets like S&P, Gold, etc. Compared to these latest assets, Bitcoin has also been able to deliver quite lucrative returns. In fact, at the time of this writing, Bitcoin was recording 53 percent in YTD returns, according to the market. data provided by Skew, compared to 28 percent by Gold.
A recent report by Ark Invest, titled “Bitcoin as an Investment,” discussed how Bitcoin can help investors and their portfolios in terms of diversification, while expanding the role that its volatile price movement can play. The report argued that, contrary to popular opinion, one of Bitcoin’s main strengths is its volatility. He pointed,
“Many investors have resisted exposure to Bitcoin due to its volatility. Although perhaps distracting, Bitcoin’s volatility actually highlights its uniqueness. “
While volatile changes in the market can cause the price to fall by substantial margins in a short period of time, it also ensures that an asset’s price action is not limited to periods of consolidation and sideways movements for too long. Skew’s market data has also illustrated how, compared to traditional assets, Bitcoin’s 1-year realized volatility is still quite high.
The report went on to argue that one of the key benefits of having Bitcoin in one’s portfolio revolves around its low correlation with traditional assets. While this property was questioned during the peak of the pandemic, the norm has been set once again. Highlighted,
“Bitcoin’s average correlation with the S&P 500 is approximately 0.03 and its average correlation with gold is -0.004. For the most part, the correlations have ranged from -0.2 to 0.2, as shown below. The coronavirus spike in correlations was an exception, but 0.4-0.5 is only 40-50% of the close to 100% correlations between stocks in the stock markets over the same time period. “
This, according to the report’s findings, minimizes idiosyncratic risks and lower overall volatility, resulting in higher risk-adjusted returns for portfolios that have exposure to Bitcoin. These factors, combined, emphasize the need for investors to allocate a small portion of their portfolios to crypto assets, something that can also be extremely important to the larger market for crypto assets and digital assets in the long term in terms of adoption. As of now, Bitcoin remains the go-to asset and one of the strongest hedges money can buy.
This is a machine translation of our English version.
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