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The classic 60/40 portfolio (Equilibrium stocks and constant source of income assets) has not undergone a war check in these unprecedented times. Central bank balance sheets are skyrocketing and interest rates are classically low. This means that investors are looking everywhere for returns, without reliable coverage.
Advisors deserve to discuss diversification with their clients, that is, in bitcoins. The cryptocurrency offers the best returns that are not correlated with the classic asset classes. This diversification merit means that bitcoin can be a key hedge against the risk of trouble.
Damanick Dantes, CMT is a macro trader that specializes in commodities, stocks and cryptocurrencies. In the past he worked in the Global Asset Allocation Research Team at Fidelity Investments. You will be enrolled in coinDesk’s Bitcoin for Advisors convention from November 9-10 to explore the benefits of virtual assets.
Related: In the CBDC race, it’s bigger to be the last
We saw this in October, when the VIX (a measure of volatility expectations) rose by 50% and bitcoin remained strong, almost 25%. What’s this like for a shelter?
Companies also use Bitcoin to cover risks. In September, MicroStrategy announced that it would buy $175 million in bitcoins. The Nasdaq-listed company plans to invest up to $250 million over the next 12 months in a combination of assets such as stocks, bonds and bitcoins.
Investors can simply delete a page from the MicroStrategy playbook. Even a small allocation to bitcoin can help offset the effect of emerging inflation, which will erode the purchasing force of money, which lately yields almost nothing.
Clients will most likely put more cash into bitcoin, and will seek input from their advisers – 76% of the monetary advisers surveyed via Bitwise Asset Management won questions from clients about crypto in 2019. Time to treat bitcoin as an asset. class.
Related: Crypto is less than Halloween
Here are 4 charts that illustrate the merit of bitcoin for investment clients.
1. Bitcoin has risen throughout the negative yield debt volume. This means that investors with negative yielding debt lose cash when the bond matures. Growing concern has led more investors to invest in bonds, causing yields to fall into negative territory in some countries. But despite all this uncertainty, bitcoin has retained its luster.
2. Bitcoin has a low correlation with classic asset classes. Simply put, Bitcoin can provide useful coverage if stocks fall. It can even act as a hedge against foreign exchange and raw material risks.
Investors are highly compensated for the threat related to bitcoin holding. Sharpe’s index is a measure of threat-adjusted yields. Therefore, despite high volatility, bitcoin can still exceed classic asset categories in recent years.
4. Bitcoin is adapting popularly in emerging countries. Consumers around the world use bitcoin for payment transactions and remittances. This is ideal for long-term investors who have bitcoin as a foreign price reserve and as a means of exchange.
4 charts appear why monetary advisors care about Bitcoin
4 charts appear why monetary advisors care about Bitcoin