With the right management strategy, bitcoin almost always increases the value of a mixed portfolio, according to Bitwise research - even if purchased at the all-time high.
Based on a test that uses historical data, the San Francisco-based wealth manager found that investors who allocated a small percentage of bitcoins in a portfolio composed of stocks and bonds would have had a significant increase in cumulative returns, even in the last few three years.
The Bitwise study
Bitwise said in its Wednesday May 6 report - written by its research manager, Matt Hougan - that a 2,5% allocation of bitcoins in January 2014, rebalanced on a quarterly basis, would increase portfolio returns by 26% to almost 45% by March 31, 2020.
A 5% allocation would have a yield almost doubled on a traditional portfolio to 65% over the same time frame. This is not very surprising. After all, the price of bitcoin has gone from $ 750 to $ 6,500 in the past six years.
Considering that bitcoin has been the top performer of the past decade, investors would expect oversized returns for holding something that has seen a 766% price increase.
But what's interesting is that yields rose, albeit marginally, even when bitcoin was allotted to the all-time high of $ 20.000 in December 2017 and continued to be held in the same wallet until March 31, when the quotation it fell about 66% to just under $ 6.500.
In the same time frame, and assuming a quarterly rebalancing, an allocation of 2,5% or 5% led to returns of 0,05% or 0,40% on a portfolio consisting of 60% world equities and 40% bonds.
Without any bitcoin allocation, the portfolio's value would actually have decreased by 0,54%; a 1% bitcoin allocation would lead to a 0,51% reduction in the overall value of a portfolio.
The secret is in the nature of Bitcoin
In his report, Bitwise explains that these seemingly paradoxical results stem from the nature of bitcoin as a resource: it is highly volatile, but largely unrelated to other resources.
“Adding bitcoins to a diversified portfolio of stocks and bonds would have significantly and significantly increased the risk-cumulative and cumulative returns of that portfolio at any significant period in the history of bitcoins, provided that a rebalancing strategy is in place ”, Reads the report.
And there are some clear warnings. Bitwise stresses that profit depends on a disciplined and coherent rebalancing strategy. Those who rebalanced their portfolio too often suffered from low returns, while those who never rebalanced significantly increased their downside risk.
Whatever happens to bitcoin in the coming years, Bitwise's report appears to provide a solid reason for integrating bitcoin into the next generation of wealth management strategies.
