Bitcoin Has An Investment ‘Advantage’ Over Other Assets, Says 178-Year-Old Business Magazine – Here’s Why


Historical magazine The Economist praises Bitcoin, claiming that crypto has attractive investment advantages over other assets.

A recent article from the 178-year-old magazine said that Bitcoin’s low correlation with traditional markets makes it a potentially excellent source of diversification.

The article begins with a quote from the Journal of Finance by Nobel Laureate Harry Markowitz, an article that helped lay the groundwork for ‘modern portfolio theory’, which explains why risk is not necessarily the primary concern. investors, but rather how much volatility the risky asset contributes to the portfolio.

An investor holding two weakly correlated or uncorrelated assets can rest more easily knowing that if one plunges in value, the other could hold up …

This is where Bitcoin has an advantage. Cryptocurrency can be very volatile, but over its short lifespan it has also had high average returns. Importantly, it also tends to move independently from other assets – as of 2018, the correlation between Bitcoin and stocks in all geographies is between 0.2 and 0.3. Over longer time horizons, it is even lower. Its correlation with real estate and bonds is also low. This makes it a great potential source of diversification.

The Economist’s results show that even throughout Bitcoin’s bearish market in 2018-19, a portfolio with a 1% allocation to Bitcoin still offered a higher risk-reward option than a portfolio without it.

“… An optimal portfolio contained a Bitcoin allocation of 1-5%. It’s not just because cryptocurrencies have exploded – even if one chooses a few particularly volatile years for Bitcoin, say from January 2018 to December 2019 (when it fell sharply), a portfolio with an allocation of 1. % in Bitcoin always exhibited better risk – rewarding features than without it.

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Featured Image: Shutterstock / Angela Harburn


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