A mere 1% allocation to crypto assets over the past few years could have nearly doubled your investment portfolio’s overall, risk-adjusted return.
You’ll have to forgive me, but I feel this is so important that I would like to repeat myself so everyone may comprehend the gravity of such a statement…
A 1% allocation of an investment portfolio, rebalanced monthly, to crypto assets over the past few years could have nearly doubled the risk-adjusted return of your portfolio! No wonder the likes of hedge fund billionaire Paul Tudor Jones have now invested 2% of their assets under management in Bitcoin, likening it to “the fastest horse in the race.”
When Iconic commissioned an Empirical Study with our friends at the Frankfurt School to observe what impact crypto would have had on the ROI and Sharpe Ratio of various portfolio strategies, we naturally expected ROI to improve drastically. Anybody who has heard of Bitcoin already knows this, so this is unsurprising. However, if crypto is best known for the returns it has made its earliest investors, perhaps what it is second-best known for is its unparalleled volatility. So, what impact would volatility have on the overall strategies risk-adjusted returns, we wondered?
Well, the results were indisputable. For the 6 different portfolio types the research analysts observed between 2013-2019, ranging from traditional strategies to family office structures, a small crypto allocation had a resoundingly positive impact not just on ROI, but the Sharpe Ratios of each portfolio type. In layman’s terms, this effectively means that crypto should have been a part of everybody’s investment portfolio over this period of time, regardless of how volatile it may be.
Now, I know what you’re thinking; you have heard the likes of Warren Buffett and Jamie Dimon call Bitcoin a Ponzi scheme and crypto a scam. You’ve also, no doubt, heard about the ICO craze of 2017, where projects raised billions without having a working product, let alone steady revenue streams. Clearly, the period observed for this study was a bubble that rightfully popped, right? Well, the truth is, Bitcoin and crypto may just be warming up.
Lost in all the noise of the past few years, which many refer to as “crypto winter”, is how professionalized the industry became during that time. Those companies that survived the fall-out of crypto winter, building and scaling real products, have built an ecosystem where users and institutions alike can now seamlessly invest in, custody, and realize the utility features of leading crypto assets. Even Mr. Dimon’s own company, JPMorgan, is investing in Bitcoin, offering banking services to crypto companies such as Coinbase, and even building their own cryptocurrency.
Coupling the elevated maturity levels of industry participants with the growing institutional and retail interest for crypto assets has led to new demand levels we have yet to have realized in crypto. In fact, amidst the backdrop of the COVID-19 pandemic and the recent Bitcoin halving event, I recently theorized how 2020 is gearing up to be Bitcoin’s Perfect Storm. As governments have endlessly printed trillions of dollars and other local currencies around the world to combat the pandemic and keep their economies afloat, crypto has made a full V-shape recovery, with Bitcoin sitting very comfortably above $10,000 at the time of this writing. Not to be left out are other leading altcoins, such as Ethereum and EOS, which have seen recent spikes in price as well due to rising demand with no end in sight.
Yes, crypto assets have performed resoundingly well over the past decade and would have enhanced just about anybody’s portfolio, which our study has definitively proven. However, the ship has not yet sailed for those who have not yet taken the plunge as crypto may be just getting started. There is immense, unrealized potential in digital currencies in an ever more digitized world, and any truly diversified portfolio would ensure they have a small allocation to such an emerging asset class.
If you haven’t already, the best way to get started in crypto is by educating yourself on Bitcoin and other leading crypto assets to understand their unique value drivers. If you are convinced of crypto as an asset class, you may be interested to learn how beginners can start investing in crypto. If you are a financial institution or family office and have technical questions, you may also book a complimentary workshop with Iconic to have your specific questions answered.
The future looks bright for Bitcoin and crypto. There may not be a better time to saddle-up, jump on the proverbial “fastest horse” and Love the Bitcoin.
- The Impact of Crypto Currencies on the Sharpe Ratio of Traditional Investment Models
- Bitcoin’s Perfect Storm
- A Beginner’s Guide to Crypto Investing
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