Is the perfect match with a good wine … Crypto?

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Cryptocurrency is everything good wine isn’t.

It’s new. It’s sexy. It’s revolutionary. With cryptos like Shiba Inu returning over 90,000,000% in the past year (no, that’s not a typo), it’s hard to resist putting your savings into crypto. However, savvy investors have realized that the differences between these two investments make them the perfect combination.

Fine wine vs crypto-currencies

Fine wine and cryptocurrency are the Shaq and Kobe of the investment world. Although each has a unique set of skills, when combined they form a whole greater than the sum of its parts. Here are three examples of how this odd couple can bring balance (and consistent returns) to your investment portfolio.

Volatility

It’s no secret that cryptocurrency is volatile. Anyone who knows the market has seen their favorite crypto hit an all-time high one day and drop in value the next. According to Stefano Gianti, head of education at Swissquote, Bitcoin is 10.6 times more volatile than the euro and the US dollar in the short term.

It is also more volatile than: the Nasdaq (2.9 times), the S&P 500 (4.7 times) and the Swiss Market Index (8.2 times).

High volatility makes it almost impossible to build wealth through compound interest. Adding fine wines to a cryptocurrency portfolio generates stability, as wine has about a third of the volatility of traditional stocks. This way, investors can have the peace of mind associated with consistent returns on investment.

Related: From NFTs to Fine Wines, We’re Entering a Golden Age for Modern Collectors

Hedging against recessions

Traditionally, gold has been the ultimate protection against recessions. Today, Bitcoin is in contention for this title. The idea is that Bitcoin will retain its value during times of economic turmoil. While it may well happen, the truth is that Bitcoin has a positive correlation with the stock market. As a result, it resists economic difficulties.

Just look at the returns on cryptocurrency investment in Q1 2020: Ethereum at 2.83%, Litecoin at -5.35%, Cardano at -7.23%, XRP at -10% and Bitcoin at -10. , 9%.

The Covid-19 recession had virtually no effect on fine wines. In fact, the Vinovest 100, an index for tracking fine wines, rose 1.1% over the same period. This performance was no accident. Fine wines outperformed benchmarks during the Great Recession, the dot-com bubble and beyond. Since good wine and crypto have a negative correlation with each other (-0.6%), the combination makes bad times more tolerable.

Return on investment

We saved this one for last. Why? Because it is the only exception to the rule.

Both cryptocurrency and good wine have a proven track record of long-term appreciation. Go back far enough, and any well-known cryptocurrency has staggering returns. Cryptocurrency has made hundreds of thousands of millionaires in recent years.

The good wine has had remarkable success. It consistently outperforms traditional investment options. According to Liv-ex, its Fine Wine 100 index appreciated 299.82% from July 30, 2001 to September 29, 2021.

Here’s how its competition behaved over the same period:

S&P 500: 261.13%. Dow Jones: 221.62%. Crude oil: 211.25%.

Despite all their differences, it’s satisfying to see that crypto and good wine can come together on one thing.

Related: The Strong Case for Wine as an Alternative Investment

Crypto for crypto and good wine

Good wine and crypto have their fair share of similarities. They are both motivated by scarcity. Their limited supplies stimulate demand. Both also offer hedges against inflation. This is why the tandem ranks among the most popular alternative assets.

Here is proof that good wine and cryptocurrency can coexist.

Even allocating 10% of a crypto wallet to good wine can make a significant difference. Wine offers a stabilizing force that doesn’t compromise Bitcoin’s spectacular ROI. It reduces portfolio volatility and maximum drawdown while increasing the Sharpe ratio, a measure that measures the performance of an investment in a risk-free asset.

And in case you were wondering, yes, these results also apply to other cryptocurrencies. Over a five-year period, from September 2016 to September 2021, a Bitcoin and Ethereum portfolio would go from an annual ROI of 184.3% to 168.3% if you allocate 10% of the funds to good wine. . However, the new portfolio would also experience a dramatic drop in volatility (10.6% less) and maximum drawdown (4.29% less). This way, investors can navigate the bumps in the market, not if, but when, they occur.

How to invest in good wine and cryptocurrency

Let’s say you only have good wine or cryptocurrency in your wallet. It makes sense to diversify your portfolio as early as possible. Anyone who hopes to time the market is doomed to failure. Immediate diversification offers the immediate benefits listed above.

Here are three ways to make fine wine and crypto coexist:

Convert existing assets. Sell ​​your existing assets, whether they are stocks, bonds, mutual funds, fine wines, or crypto, to buy new assets. Invest from cash reserves. Got money lying around in your savings account or a rainy day fund? Why not use some of it to invest in good wine or crypto? Take out a loan. For HODLers who don’t want to sell their crypto, this option is for you. You can take out a loan against your cryptocurrency for 50% to 100% of its value. As long as the cryptocurrency appreciates faster than the interest rate, you can pay off the loan and simultaneously diversify without losing money or paying capital gains tax.

The best portfolios are balanced portfolios. When it comes to investing in fine wine and cryptocurrency, each serves as the perfect counterweight to the other, creating a balance for any investment portfolio.

Related: How To Protect Your Money From Inflation In 2021

Don’t wait for the economic crash to find out what you’ve been missing out on.

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