Diversification with Bitcoin

Each investor should consider for themselves whether they could consider bitcoin as part of their investment portfolio.

A new asset class

Bitcoin is a volatile asset on its own. However, the risks and return drivers behind Bitcoin are fundamentally different from those of traditional risky assets. This means it doesn’t fit neatly into conventional finance frameworks such as the “risk-on” and “risk-off” approaches used by many macro investors.

Scarcity

Bitcoin’s nature as a scarce, decentralised, and non-sovereign global asset makes it an attractive safe haven during times of fear or geopolitical disruption.

Adoption

Over the long term, Bitcoin’s adoption is likely to be driven by concerns over global monetary stability, geopolitical tensions, U.S. fiscal sustainability, and political stability. These factors often affect Bitcoin inversely compared to traditional risk assets.

Generally, wealth is expressed in nominal terms, not accounting for the increases in consumer prices. A positive yearly performance may appear an outstanding achievement, but if inflation also significantly increased, the actual purchasing power is different. Inflation has been very high over the past few years, significantly affecting the purchasing power of investors.

Figure 1 illustrated the impact of an increasing Bitcoin allocation on a traditional investment portfolio. A small Bitcoin allocation in a traditional investment portfolio does not only increase the returns but also increases the risk-adjusted returns. Bitcoin has a fixed supply and therefore functions as an inflationary hedge against an increasing money supply.

Correlation with traditional assets

Figure 2 reveals an average correlation coefficient of 0,46, indicating a moderate relationship between these assets. This relationship suggests that Bitcoin and the S&P 500 exhibit some degree of synchronised movement, potentially influenced by broader macroeconomic factors. Bitcoin's moderate correlation helps increase portfolio diversification.

Resilience during unique market events

Bitcoin has shows significant resilience against unique market corrections. The final figure presents a comparative analysis of asset performance during significant market events over the past five years. Figure 3 provides a comprehensive view of performance metrics, with the event description on the left, followed by 10-day and 60-day performance indicators in the center and right columns, respectively.

At Blockrise, we currently consider the market conditions for our Asset Management services. More detailed outlook can be found in our published article Getting off zero: The power of a Bitcoin allocation.

At Blockrise, we strongly believe in Bitcoin’s potential to transform the financial world. This conviction guides our focus on secure storage and risk management. Our services are designed with the long-term development and adoption of these new assets in mind.

Bitcoin

Bitcoin is the first and most well-known cryptocurrency, often compared to digital gold. It offers a limited supply of 21 million bitcoins, contributing to its scarcity and value. We believe Bitcoin's future is promising due to several factors:

Decentralisation
Bitcoin operates without a central authority, making it resistant to censorship and government interference.

Security
The network is secured by a large number of miners solving complex cryptographic puzzles, ensuring robustness and reliability.

Adoption
Increasing numbers of companies and institutional investors accept Bitcoin as a payment method or investment, enhancing its legitimacy and acceptance.

Inflation hedge
With a fixed supply and predictable issuance, Bitcoin is an effective hedge against inflation, especially during economic uncertainty.

Technological development
Continuous improvements like the Lightning Network make Bitcoin more efficient and user-friendly.