Bitcoin Has An Investment Advantage Over Other Assets, According To 178-Year-Old Business Magazine, Here’s Why

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Historical magazine The Economist praises Bitcoin, claiming that crypto has attractive investment advantages over other assets.

A recent 178-year-old magazine article indicates that Bitcoin’s low correlation with traditional markets makes it a potentially excellent source of diversification.

The article begins with a quote from the Journal of Finance by Nobel Laureate Harry Markowitz, an article that helped lay the groundwork for modern portfolio theory, which explains why risk is not necessarily the primary concern of investors. , but rather how much this risky asset contributes to volatility. wallet.

An investor holding two weakly correlated or uncorrelated assets can rest more easily knowing that if one plunges in value, the other could hold up …

This is where Bitcoin has an advantage. Cryptocurrency can be very volatile, but over its short lifespan it has also had high average returns. It is important to note that it has also tended to move independently of other assets since 2018, with the correlation between Bitcoin and stocks in all geographies being between 0.2 and 0.3. Over longer time horizons, it is even lower. Its correlation with real estate and bonds is also low. This makes it a great potential source of diversification.

The Economist’s results show that even throughout the 2018-2019 Bitcoin bear market, a wallet with a 1% allocation to Bitcoin still offered a higher risk-reward option than a wallet without it.

… An optimal portfolio contained a Bitcoin allocation of 1-5%. It’s not just because cryptocurrencies have exploded even though we choose a few particularly volatile years for Bitcoin, say from January 2018 to December 2019 (when it fell sharply), a portfolio with an allocation of 1%. to Bitcoin always showed a better risk-reward ratio. characteristics that one without it.

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Featured Image: Shutterstock / Angela Harburn

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