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- The Economist, a venerable publication, has praised Bitcoin, claiming that it offers appealing investing benefits over other assets
- An investor who holds two assets that are weakly linked or uncorrelated may relax knowing that if one falls in value, the other may maintain its own. Bitcoin has a distinct advantage in this area
- The data published in The Economist demonstrate that even during Bitcoin’s 2018-2019 bad market, a portfolio with a 1% Bitcoin investment had a better risk-reward ratio than one without
The Economist, a venerable publication, has praised Bitcoin, claiming that it offers appealing investing benefits over other assets. Bitcoin’s poor connection with traditional markets, according to a new article in the 178-year-old publication, makes it a potentially good source of diversification. The article opens with a quote from Nobel Laureate Harry Markowitz’s Journal of Finance, a paper that helped lay the groundwork for modern portfolio theory, which explains why riskiness isn’t always the most important consideration for investors, but rather how much volatility a risky asset contributes to the portfolio.
An investor who holds two assets that are weakly linked or uncorrelated may relax knowing that if one falls in value, the other may maintain its own. Bitcoin has a distinct advantage in this area. Although the cryptocurrency is extremely volatile, it has produced high average returns over its brief existence. It also moves independently of other assets, the correlation between Bitcoin and equities from all geographies has been between 0.2 and 0.3 since 2018. It is significantly weaker over longer time periods. It has a low connection with real estate and bonds. As a result, it’s a fantastic potential source of diversification.
The data published in The Economist demonstrate that even during Bitcoin’s 2018-2019 bad market, a portfolio with a 1% Bitcoin investment had a better risk-reward ratio than one without. A Bitcoin allocation of 1-5 percent was shown to be optimum in a portfolio. This isn’t simply because cryptocurrencies skyrocketed — even if one cherry-picks a particularly turbulent couple of years for Bitcoin, say January 2018 to December 2019 (when it plummeted), a portfolio with a 1% allocation to Bitcoin nevertheless outperformed one without it.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
