This is where Bitcoin ‘has an edge’ over stocks and real estate

Bitcoin is considered to be the most successful cryptocurrency. It continues to attract investors who previously viewed gold as a de facto inflation hedge and portfolio insurance.

So is it a wise decision to include BTC in an investment portfolio?

Well, here’s what the current issue of the prestigious 178 year old weekly magazine says about it.

“Diversification is both observed and useful; a rule of conduct that does not imply the superiority of diversification must be rejected both as a hypothesis and as a maxim. “

An expert from The Economist, who reiterated the above quotation from the 1990 Nobel Prize Winner Harry Markowitz Journal, said:

“… the investor should maximize his returns in relation to the risk taken (the volatility of the returns). It follows, of course, that assets with high and reliable returns should be well represented in a sensible portfolio. “

The article highlights the need for diversification and states: “Diversification can reduce volatility without affecting returns.”

Bitcoin – a great tool for portfolio diversification

Asset classes in an investment portfolio should have the potential to generate high returns. They now have little or no correlation with one another. Although stocks and real estate, for example, can produce hefty returns, they are unfortunately also highly correlated.

“Bitcoin has an advantage here. The cryptocurrency may be very volatile, but it has also achieved high average returns during its short lifespan. It is important that it also moves independently of other assets. Since 2018, the correlation between Bitcoin and stocks in all regions has been between 0.2 and 0.3. It is even weaker over longer time horizons. The correlation with real estate and bonds is similarly weak.

Ergo, this factor makes it an excellent diversification potential. The graph below highlights the same thing, i.e. the correlation of Bitcoin with …

Source: market observation

In addition, the results also revealed an important aspect in support of the largest token. It found that even throughout the 2018-2019 Bitcoin bear market, a portfolio with a 1% allocation to Bitcoin still offered a higher risk-return option than one without.

“… An optimal portfolio contained a Bitcoin allocation of 1-5%. This is not only because the cryptocurrencies have shot up – even if you choose a few particularly volatile years for Bitcoin, say January 2018 to December 2019 (when it fell steeply), a portfolio with a 1% – Allocation in Bitcoin still poses a better risk. Reward features as one without. “

The mentioned allocation has already been followed or advised. Keep this in mind, said Ric Edelman, founder of Edelman Financial Engines, while speaking with CNBC, “Allocating 1% of a portfolio to Bitcoin could provide exposure to this asset class without hurting finances.” 2020 led. Fast forward to the current year, various crypto experts have increased their crypto allotments.

source https://www.bisayanews.com/2021/09/28/this-is-where-bitcoin-has-an-edge-over-stocks-and-real-estate/