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, 02:15:45 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, 09:32:04 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, 09:32:04 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, 06:02:30 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, 09:28:08 AM

Quote from: bitmover on May 23, 2018, 09:32:04 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, 09:32:04 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, 09:32:04 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, 09:32:04 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, 12:37:16 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, 12:37:16 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.

marginal

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Bitcoin is highly volative and it drives me crazy, but I believe it will stabilize somehow sooner or later on market.

bitmover

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bitcoindata.science

Quote from: googs84 on May 26, 2018, 02:01:04 AM

I believe in your theory

This is not my theory but a Nobel prize winner's theory:)

Bitcoin and all other cryptocurrencies have a Very strong correlation.

MAJICOIN

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Yes if we select top five coins for making a portfolio and bitcoin is the first one then it is good because with this the risk factor can be reduced and it is good for every one to keep bitcoin coin in your portfolio.

googs84

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I believe in your theory but I cant ignore my own experience of holding portfolio. Many times it happens that bitcoin goes down but at the same time it does happen that many other altcoins goes up and gives more profits. Today also you check it live on CMC that though BTC is down the road then also some of the altcoins are up. They are giving me nice % of profit today. The meaning of this is having the nice portfolio can be profitable at same time! Holding BTC is always perfect no question about it but possibility of getting more profits from the different alts cant be ignored.

davis196

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You are wrong about bitcoin being non-correlated to any other asset.
Bitcoin is correlated to the US dollar.That`s why the the current BTC price is down.The US dollar is increasing it`s value to resist the higher oil prices.Anyway,you are right about the modern protfolio theory.
If you have only 100% bonds,the inflation will eat all the interest gains.Having 20% stocks lowers that risk.

cryptothief

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Wouldn't have thought you need a mathematical formula to prove that you should diversify investments. Diversifying within a certain category is slightly better than holding everything in one investment, but the risk is still concentrated. As mentioned in some comments above, spreading the risk across several investment channels, and spreading it even further within those channels to reduce your exposure to sudden moves in certain industries/countries, is a solid strategy. Also maintaining a mix of liquid and non liquid, high risk and low risk, and long term and short term. Related to cryptocurrency, it really should be (considerably) less than 10% of your overall investments, depends on your personal risk/reward outlook whether you want to stretch that a bit further. Also can depend on your current situation. Certain times in life, kids heading off to college for example, require increased liquidity, so your portfolio should reflect that.

Getcoinsite

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Well this is an interesting thing since i am looking for new style handling my folios,let me study this first before i give my final argument but as i take a first look this seems to be more liberated way on how to lessen the risk.

And i think you made a long way research regarding this before posting here,and thanks about this one you give some option to generate good income

bitmover

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Quote from: Panda Trump on May 25, 2018, 02:30:08 PM

That makes sense, but there's something I don't get about this mathematical model... Sure, it can reduce the risk of your portfolio, but isn't it also true that it could just as well lose value and actually increase the risk of your portfolio? If it falls 50% and 3% of your portfolio is in the Bitcoin stuff, you just lost 1.5%. Maybe not a lot for small hobbyist investors, but it definitely is a lot for larger ones.

So... Basically I don't get the point of this... Everything can reduce the risk of your portfolio, just as everything can increase the risk of your portfolio. I don't see how Bitcoin can only "reduce the risk" or if it does not only reduce the risk, I don't get what is the point of this..

Correlation is cool and all, but it doesn't change the fact that the volatility of this thing neglects that correlation part.

When you put all your eggs on the same basket, you may lose all your eggs at once.

Lets suppose you invest all your money in the US Stock Market, SP500.
If there is some kind of crisis like 2008, you may lose 50% of your whole money overnight.
But Bitcoin may not suffer 50%, it may even go up 10 %, or 30%.

Or let's suppose you are a South Korean and you have 50% Korean Stocks and 50% bonds. If a north korean dictator throw a nuclear bomb on Seul, well, you lost all your money probably. Is South Korean riskier than BTC? Ofc not, but you are extremely exposed to one kind of risk.

When you make a mix of different assets and get exposed to different risks, your overall portfolio becomes less riskier.

Modern Portfolio Theory suggests that you make a geographical mix (stocks from many continents), diversify in bonds, real states, stocks, etf, physical assets (like a house), foreign currencies, even cryptocurrency.

The idea is to reduce risk and reduce volatility of your overall portfolio. If you add High volatility assets to your portfolio, they may reduce your portfolio volatility.

BitcoinMarketer39

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Quote from: mstfprcn on May 24, 2018, 06:02:30 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.

I agree that bitcoins can really make your portfolio grow because investing on bitcoins can really guarantee you to earn a huge amount of profit and if some of your coins fail then still you can earn some extra cash to back it up.

Panda Trump

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Quote from: bitmover on May 24, 2018, 05:38:40 AM

Quote from: Daniel91 on May 23, 2018, 09:45:10 AM

Generally, it's always very good idea ''Don't put all the eggs in the same basket''

So, in my opinion, we should invest in different markets and financial instruments, not only crypto market.
Thank you for your financial analysis.
Bitcoin was a new asset class with high returns but bitcoin is not ''new'' any more and returns are not high as before.
The market has stagnated for half a year.
It's very difficult to predict future with crypto market.

Hello,

This Modern Portfolio Theory is not about predicting future.
It's a statistical and mathematical model that builds an optimal portfolio, which offers the maximum possible expected return for a given level of risk.
And you can lower the risk by adding non-correlated assets.

If all your assets go up and down at the same time, that's bad for you. Imagine the whole Stock Market goes down 10% (which is huge for that kind of market), but bitcoin goes up 30% (which is not that much for bitcoin). Your portfolio will not suffer so much.

The opposite can happen too, when stock market goes up 10%, and bitcoin goes down 30%.

The idea is to be exposed to many different assets with non-correlated risks. The objective is not receiving high returns from bitcoin, but that it's not going up or down at the same time as the rest of your portfolio.

That makes sense, but there's something I don't get about this mathematical model... Sure, it can reduce the risk of your portfolio, but isn't it also true that it could just as well lose value and actually increase the risk of your portfolio? If it falls 50% and 3% of your portfolio is in the Bitcoin stuff, you just lost 1.5%. Maybe not a lot for small hobbyist investors, but it definitely is a lot for larger ones.

So... Basically I don't get the point of this... Everything can reduce the risk of your portfolio, just as everything can increase the risk of your portfolio. I don't see how Bitcoin can only "reduce the risk" or if it does not only reduce the risk, I don't get what is the point of this..

Correlation is cool and all, but it doesn't change the fact that the volatility of this thing neglects that correlation part.

meqnurgn

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Yes, I am a diversified investor. I have seen your analysis more firmly on the idea of investing in bitcoin. This is a new investment opportunity, and many people have not yet entered the market.

bitmover

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Quote from: Maestro75 on May 24, 2018, 05:55:26 AM

Quote from: bitmover on May 23, 2018, 09:32:04 AM

This is where bitcoin comes in.

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

In all you talked about I agreed. But not with the bitcoin. I do not believe that bitcoin gives high returns always. What about the high risk involved. Did you also calculate that risk that not so many people like bitcoin because of that and the case of volatility?

Bitcoin is the asset with the biggest returns in the last 8years.

I am satisfied with that valuation

mstfprcn

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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.

Maestro75

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Quote from: bitmover on May 23, 2018, 09:32:04 AM

This is where bitcoin comes in.

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

In all you talked about I agreed. But not with the bitcoin. I do not believe that bitcoin gives high returns always. What about the high risk involved. Did you also calculate that risk that not so many people like bitcoin because of that and the case of volatility?

spongegar

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Quote from: Daniel91 on May 23, 2018, 09:45:10 AM

Quote from: bitmover on May 23, 2018, 09:32:04 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

Generally, it's always very good idea ''Don't put all the eggs in the same basket''

So, in my opinion, we should invest in different markets and financial instruments, not only crypto market.
Thank you for your financial analysis.
Bitcoin was a new asset class with high returns but bitcoin is not ''new'' any more and returns are not high as before.
The market has stagnated for half a year.
It's very difficult to predict future with crypto market.

true, diversity in one's holdings makes for a smarter investor in the end. a diverse portfolio makes up for the slack an investment is short of. over time if both investments prove to be profitable then all well and good. but if one fails, you can still make up for your losses by your other holdings. it still holds true for all crypto currencies today. i myself don't just keep one coin in my holdings.

bitmover

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Quote from: Daniel91 on May 23, 2018, 09:45:10 AM

Generally, it's always very good idea ''Don't put all the eggs in the same basket''

So, in my opinion, we should invest in different markets and financial instruments, not only crypto market.
Thank you for your financial analysis.
Bitcoin was a new asset class with high returns but bitcoin is not ''new'' any more and returns are not high as before.
The market has stagnated for half a year.
It's very difficult to predict future with crypto market.

Hello,

This Modern Portfolio Theory is not about predicting future.
It's a statistical and mathematical model that builds an optimal portfolio, which offers the maximum possible expected return for a given level of risk.
And you can lower the risk by adding non-correlated assets.

If all your assets go up and down at the same time, that's bad for you. Imagine the whole Stock Market goes down 10% (which is huge for that kind of market), but bitcoin goes up 30% (which is not that much for bitcoin). Your portfolio will not suffer so much.

The opposite can happen too, when stock market goes up 10%, and bitcoin goes down 30%.

The idea is to be exposed to many different assets with non-correlated risks. The objective is not receiving high returns from bitcoin, but that it's not going up or down at the same time as the rest of your portfolio.

Daniel91

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Quote from: bitmover on May 23, 2018, 09:32:04 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

Generally, it's always very good idea ''Don't put all the eggs in the same basket''

So, in my opinion, we should invest in different markets and financial instruments, not only crypto market.
Thank you for your financial analysis.
Bitcoin was a new asset class with high returns but bitcoin is not ''new'' any more and returns are not high as before.
The market has stagnated for half a year.
It's very difficult to predict future with crypto market.

bitmover

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bitcoindata.science

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.

When you add volatile assets, that have low correlation with the other assets in your portfolio, your overall portfolio volatility and risk get lower.

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

Topic: Bitcoin can reduce the risk of your portfolio (Read 458 times)