It has always been a bit of a puzzle to me why everything in #bitcoin is so extreme. Perhaps it is partly because it’s characteristics as an asset class are pretty extreme. Yet, that does not mean it cannot add value to a well-diversified portfolio. 1/7
In fact, that is exactly what #bitcoin has done since it was created, but also during more recent periods. By allocating a modest portion of your #portfolio to bitcoin, you would have increased portfolio return, without adding #volatility. 2/7
Like for any asset class, it’s possible to derive future returns for #bitcoin. For example by using the market cap of investable #gold, or the value of the insurance policy against fiat currency debasement. You can look and mining costs, network effects, and so on. 3/7
You can use scenarios for future #bitcoin #volatility (currently 70% annualized) and #correlation (currently close to zero) based on further integration into traditional financial markets, an increase in investment vehicles, and increased regulation. 4/7
Obviously the odds that you get it (exactly) right are very slim. But do not overestimate the power of #return and #volatility projections for traditional asset classes, or the estimates used in mean variance optimization models. 5/7
In addition, the discussion if #bitcoin represents intrinsic value is not that relevant. Nor do #gold, #art and most other #collectibles, and not to forget the US #dollar. They all have monetary value. 6/7
Hence, I think a pragmatic, data-focused, and open-minded approach to #Bitcoin as an asset class is the superior one. We have put out an extensive research piece focusing on #bitcoin return estimates, asset class characteristics, and its impact on traditional portfolios. 7/7
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