Thread by @Melt_Dem

1/ paul tudor jones suggests a 5% allocation to #bitcoin as an effective portfolio diversifier

our team @CoinSharesCo did the research, and our recommendation? 4%

why?

let's delve into portfolio construction and the numbers - see the full report here coinshares.com/research/a-lit…

2/ over the last 18 months, bitcoin has been increasingly financialized as an asset

our weekly digital asset fund flows report shows AUM in crypto products is nearly $50B, a sharp increase from $5B a year ago when PTJ first talked about bitcoin 😎

medium.com/coinshares/vol…

3/ behavioral analysis of bitcoin holders also shows that investors holding bitcoin longer than a year has risen from ~30% in 2012 to ~55% today

in 2020 alone, ~22% of all bitcoin in existence were moved off exchanges (presumably into LT custody + ETPs)

4/ bitcoin sits in a unique place in the economic cycle, and while bitcoin may have emerged in the last economic crisis, we have yet to gather enough data to understand the relationship between bitcoin and inflation, as well as bitcoin and broader macro-economic cycles

5/ if we place bitcoin in a traditional 60/40 portfolio, it outperforms other portfolio diversifiers like gold, real estate, and other common alternative investments

bitcoin has an asymmetric return profile, with annualized returns 2x that of alternatives w similar downside risk

6/ even if bitcoin was added to a portfolio at the peak in late 2017, it would still enhance portfolio returns with a significantly better sharpe ratio than other alternatives

7/ the most significant improvements in Sharpe ratio (risk-adjusted return) are seen with allocations of up to 10% bitcoin in the portfolio

this highlights how a small allocation can make a dramatic difference in portfolio performance

8/ in the report, we also highlight the reduced risk from quarterly rebalancing to maintain portfolio weights, and touch on broader macro correlation

for those who are interested, i highly recommend our research portal - coinshares.com/research - lots of great content!