Bitcoin can reduce the risk of your portfolio

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legendary

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Traditional fiat billionaire Marc Lasry has actually hedged a small percentage of his net worth by allocating a certain amount of it to Bitcoin. Currently his stake in Bitcoin accounts for 1% of his total net worth, which is a very smart move. I personally would have gone for a higher amount, but since he's just looking to play it safe and he's not a Bitcoin geek, 1% is sufficient enough.

https://www.cnbc.com/2018/07/18/marc-lasry-bitcoin-to-hit-40000-dollars-as-it-becomes-more-mainstream.html

Regarding ETF's, I'm seeing more short term value in traditional key players to set up custody solutions to have their clients also allocate a small percentage of their net worth to Bitcoin. I don't think we're very far away from that point with how Goldman Sachs and JPMorgan have been signalling interest in offering crypto custody solutions. In other words, we don't really need an ETF, but it would however make things certainly more convenient for institutions.

The only downside is that Goldman Sachs and JPMorgan will be holding significant number of Bitcoin if they really end up going through with it. Undecided

crypto_futurer

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Bitcoin is an excellent addition to the investment portfolio. Bitcoin for many years shows a moderate increase in price and it really will protect the risk of your portfolio.

richardsNY

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Quote from: jaysabi on May 29, 2018, 03:15:45 PM

We'll find out better when there's a big market downturn what happens to crypto, but my prediction is Bitcoin and other cryptos tank along with the market, and probably harder due to their purely speculative nature. When things turn bad, speculative assets decrease in value the most.

Speculative assets are indeed hit harder in traditional terms, but I think that in case there is a massive outflow of capital from everything that fits in the category traditional assets, the safe haven might turn out to be crypto, and especially Bitcoin. If we look at how many pending developments there are when it comes to making Bitcoin an easy to enter option for institutions, they will be able to park capital in either the asset itself or one of the many financial tools provided by the mainstream platforms. We unfortunately don't have any past history to dive into, so we indeed need to wait for the traditional economy to mess up, which I think is pretty close. The US stock market is bought up with trillions in debt, this can't end well.

kingkonjac

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I believe that btc is a very good investment in crypto with the possiblity of returns but for now it has reached too high price and may have reached near the top it would be wiser for us to choose for new coins which have more room to grow such as Ico`s, for example Usechain: https://www.usechain.net/

jaysabi

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Quote from: bitmover on May 23, 2018, 10:32:04 AM

I was thinking about Modern Portfolio Theory and Bitcoin. I did a little research about it and will share my thoughts with you guys.

As stated here (https://www.turtletrader.com/modern-portfolio-theory/)

Quote from: https://www.turtletrader.com/modern-portfolio-theory/

Modern portfolio theory is standard practice in the smart investor’s portfolio. MPT places a non-correlated investment, a predefined percentage managed futures component, into a typical bond and equity portfolio. Risk is diversified away from the bond and equity positions into non-correlated managed futures positions. Higher portfolio returns with a reduction in risk is the end result.

As you can see in this chart, from the same website, 100% bonds is riskier than 80% bonds and 20% stocks.

A greate challenge to investors is to find non-correlated assets.

This is where bitcoin comes in.

Bitcoin is a new asset class with high returns, non-correlated to any other assets.

Pension funds, hedge funds, and many other funds are probably willing to buy bitcoin, as it is non-correlated to any other assets. But they can't for legal reasons.
But they can buy a Bitcoin ETF, or maybe a Bitcoin Future. Soon money will come, when those legal instruments are available for them.

Remember, to lower the risk of your portfolio bitcoin should be something like 3% of your overall portfolio, maybe even less.

This articles covers a little about the subject too.
https://medium.com/@dustin_byington/why-owning-bitcoin-reduces-risk-8163309ec2f1

Edit:
Vitalik Buterin saying the same thing, that cryptocurrencies reduces risk.
http://Https://www.youtube.com/watch?v=VosfxChTxVg

It seems this is only addressing volatility risk, and adding an instrument to your portfolio that is far more volatile than either stocks or bonds may reduce your volatility risk while significantly increasing your overall risk. Also, modern portfolio theory is predicated on the concept of non-correlated assets, and I'm not sure that crypto is an uncorrelated asset to traditional equities. We'll find out better when there's a big market downturn what happens to crypto, but my prediction is Bitcoin and other cryptos tank along with the market, and probably harder due to their purely speculative nature. When things turn bad, speculative assets decrease in value the most. So because crypto isn't a non-correlated asset, and because it's far more volatile than traditional assets (stocks and bonds), you cannot reduce your overall investment risk by buying it.

5ensei

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Needs more FOMO for the investors who will miss out on buying at low prices and have to once again buy when it is high again. Diversifying will reduce the risk of losses across all investments, you'd have to be very unlucky to lose in crypto, finance, and assets.

osh5

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Correlation plays a bigger role in portfolio risk than the volatility of individual assets.
Addition of assets like Bitcoin have high volatility but are not correlated to the other assets in the portfolio & actually reduces the total portfolio risk.

Hence we need volatility to lose volatility but correlated volatility but correlated volatility should be avoided & this non correlated volatility is what we need.

Pinoyfan

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Quote from: bitmover on May 23, 2018, 10:32:04 AM

I was thinking about Modern Portfolio Theory and Bitcoin. I did a little research about it and will share my thoughts with you guys.

As stated here (https://www.turtletrader.com/modern-portfolio-theory/)

Quote from: https://www.turtletrader.com/modern-portfolio-theory/

Modern portfolio theory is standard practice in the smart investor’s portfolio. MPT places a non-correlated investment, a predefined percentage managed futures component, into a typical bond and equity portfolio. Risk is diversified away from the bond and equity positions into non-correlated managed futures positions. Higher portfolio returns with a reduction in risk is the end result.

As you can see in this chart, from the same website, 100% bonds is riskier than 80% bonds and 20% stocks.

A greate challenge to investors is to find non-correlated assets.

This is where bitcoin comes in.

Bitcoin is a new asset class with high returns, non-correlated to any other assets.

Pension funds, hedge funds, and many other funds are probably willing to buy bitcoin, as it is non-correlated to any other assets. But they can't for legal reasons.
But they can buy a Bitcoin ETF, or maybe a Bitcoin Future. Soon money will come, when those legal instruments are available for them.

Remember, to lower the risk of your portfolio bitcoin should be something like 3% of your overall portfolio, maybe even less.

This articles covers a little about the subject too.
https://medium.com/@dustin_byington/why-owning-bitcoin-reduces-risk-8163309ec2f1

I think we should teach them the rules for this. Cause it is a very good knowledge for them so they will be a good trader someday. And many lesson that they can adopt it this criteria. We should learn how to be successful someday. Cause they know that they can do it the same when they will become trader

ShitTL

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Quote from: mstfprcn on May 24, 2018, 07:02:30 AM

as per my tradiing strategy i always try to keep %40 btc in my portfolio for bad scenerios, it would be always good to feel btc power in your pocket.

The bitcoin reduces my portfolio I understand and know that but when I got involved in the digital market it also meant that I would accept but the risk as well as the volatility they accepted trampled on revenue. own

bitmover

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Quote from: Thirdspace on May 29, 2018, 10:28:08 AM

Quote from: bitmover on May 23, 2018, 10:32:04 AM

Bitcoin is a new asset class with high returns, non-correlated to any other assets.

that's true about high return but it comes with high risk too Undecided

adding another high risk asset is good for diversifying risk but it doesn't lower the overall portfolio risk

Quote from: bitmover on May 23, 2018, 10:32:04 AM

Remember, to lower the risk of your portfolio bitcoin should be something like 3% of your overall portfolio, maybe even less.

since bitcoin would be most likely the highest risk in your portfolio,
even having small portion below 5% would increase your overall portfolio risk, not lowering
but no doubt it would also contribute pushing your overall portfolio return to even higher return

so my final conclusion or opinion on this:
Bitcoin does NOT REDUCE portfolio risk but it does DIVERSIFY risk and INCREASE return of portfolio at the same time

Hello,

You did not understand it yet. Diversifying reduces the risk even if the asset has high risk, that's is mathematically proved already by the Modern Portfolio Theory.

Maybe a super genius can convince you. Listen to Vitalik buterin, he is saying the exact same thing. That cryptos ups and downs are disconnected from stocks, so cryptos REDUCES RISK in your portfolio.

https://www.youtube.com/watch?v=VosfxChTxVg

Thirdspace

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Quote from: bitmover on May 23, 2018, 10:32:04 AM

Bitcoin is a new asset class with high returns, non-correlated to any other assets.

that's true about high return but it comes with high risk too Undecided

adding another high risk asset is good for diversifying risk but it doesn't lower the overall portfolio risk

Quote from: bitmover on May 23, 2018, 10:32:04 AM

Remember, to lower the risk of your portfolio bitcoin should be something like 3% of your overall portfolio, maybe even less.

since bitcoin would be most likely the highest risk in your portfolio,
even having small portion below 5% would increase your overall portfolio risk, not lowering
but no doubt it would also contribute pushing your overall portfolio return to even higher return

so my final conclusion or opinion on this:
Bitcoin does NOT REDUCE portfolio risk but it does DIVERSIFY risk and INCREASE return of portfolio at the same time

iqlimasyadiqa

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Quote from: hualangktsld841 on May 28, 2018, 01:37:16 AM

I believe that diversification in the field of investment is a basic common sense. The high volatility of bitcoin is accompanied by high returns and high risks, and both real estate and bank bonds are low risk and stable investment. I believe it will bring more possibilities to your investment. If real estate is in crisis, maybe you can make up for losses in bitcoin, which can make your investment more flexible.

All investments that exist in the world today are always at risk, which is the difference that is the size of the risk of an investment. As well as that investment in real estate is quite small because real estate always increases every year. While investing in Bitcoin is more risky because the price movements are always drastic, in theory the bitcoin price will always increase but it always creates panic and for anyone who can not pass through the condition then it could have a much greater loss.

mikyadel

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i don't think btc is considered safe asset for a portfolio as it dropped from amost 20k$ to 7k$ that's more than 100% loss . Meanwhile other altcoins didn't drop that much means btc price is so volatile that makes it not a good choice to minimize risks

felixesteban

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Diversification is very useful and necessary as every expert says. But I have to say for myself, I can't follow this rule at all. Because it always seems that the price of the altcoins so cheap and attractive,So I'm starting to buy altcoins using fiat money and bitcoin. The crypto market is such a deep well that the prices are falling steadily and imprisoning you at the bottom of the well.

bitmover

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I just found this video today.
https://www.youtube.com/watch?v=VosfxChTxVg

VItalik buterin is saying the exact same thing. That it's a non correlated asset, so cryptocurrencies are an interesting investment, and many people are investing because of it.

I think this is the first time I see a super genius saying the same thing as I did
LOL

magneto

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If the rest of your portfolio is purely in investments like cash/savings, bonds, shares, etc., then bitcoin can really be a great diversifier.

I think what you said here sums it up perfectly:

Quote

Bitcoin is a new asset class with high returns, non-correlated to any other assets.

I wouldn't say that it's got high returns, but it's not correlated with anything, and it's decentralised. Plus, the supply is fixed at a maximum, so as long as adoption goes up, it would mean that in the long term, there should be overall steady growth with bitcoin prices.

However, don't put everything in one basket either. Even though I believe that bitcoin holds the most potential, still diversify into other investments.

gabmen

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Quote from: hualangktsld841 on May 28, 2018, 01:37:16 AM

I believe that diversification in the field of investment is a basic common sense. The high volatility of bitcoin is accompanied by high returns and high risks, and both real estate and bank bonds are low risk and stable investment. I believe it will bring more possibilities to your investment. If real estate is in crisis, maybe you can make up for losses in bitcoin, which can make your investment more flexible.

Well reducing the risk by sticking to something that has higher risk is a lot more riskier for me :p I have noto problems with having a huge bulk of my portfolio in btc, but not having any other assets to fall back on in case things go unwanted is something also to consider. Bitcoin's value is subject to speculation and it can go anywhere depending on how people think about it.

pat4cryptoreal

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It gives me joy when I receive profit from different directions ranging from real estate, supplying contract, consultation work and some other investment.

hualangktsld841

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I believe that diversification in the field of investment is a basic common sense. The high volatility of bitcoin is accompanied by high returns and high risks, and both real estate and bank bonds are low risk and stable investment. I believe it will bring more possibilities to your investment. If real estate is in crisis, maybe you can make up for losses in bitcoin, which can make your investment more flexible.

timerland

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Well, diversifying anything will reduce the risk of it. That's just facts.

But I like the statement that bitcoin is independent from any other asset class. And I agree - this is why bitcoin is so attractive as an investment to prospective investors, because it offers a hedge against fiat, stocks, housing, anything, because it's completely independent.

Even though it's independent, it's still a long term store of value because it's decentralized. That's the true beauty of bitcoin as an investment. So yeah, bitcoin can honestly not only reduce the risk of your portfolio, but also make it grow a lot faster in the future as adoption grows.

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