Bitcoin: a non-correlated asset
Astute investors seek to build a well-diversified portfolio in an effort to weather downturns and capitalize on upswings in the market. Portfolio diversification is rooted in Modern Portfolio Theory, which suggests that owning non-correlated assets can help mitigate downside risk. In recent years, the market has digested several tumultuous events, including the Greek debt crisis, unprecedented volatility in Chinese equities, and currency manipulation across several G-20 nations. With these market dislocations in mind, we calculated that Bitcoin, over the past year, demonstrated low correlation to various major asset classes and fiat currencies. In addition, the investment timeframe of owning Bitcoin has slowly increased, as investors look to speculate on the price appreciation of the asset, and adopt a buy and hold strategy rather than trading daily.
Given the low correlation to other assets, and decreasing volatility, investing in Bitcoin could help boost gains, while adding minimal risk to one’s overall portfolio. While past performance is no guarantee of future results, this illustrates the value in adding Bitcoin to enhance returns, without necessarily taking on additional risk.
It is important to remember that we’re still in the early days of this asset’s lifecycle. But, the potential upside of positive performance for Bitcoin is tremendous. With more technology-based solutions simplifying and reducing friction in existing processes, the value proposition for digital currency seems promising. Similar to the advent of the mobile phones and their ability to transform communication, Bitcoin and its underlying technology are poised to revolutionize asset ownership and value transfer. As a result, it’s no surprise that Bitcoin has emerged as the world shifts to a digital ecosystem.