Fidelity: Bitcoin Volatility (BTC) is a Good Risk for Institutions to Take!
Stop trying to peddle us your dumb Bitcoins (BTC): they have no intrinsic value, it’s all too volatile, it smells like Ponzi scheme.Sound familiar?Fidelity may make you change your mind with its latest simulation that shows the value of having a few BTC in your investor portfolio.
A small percentage that makes a BIG difference
In a paper entitled “Bitcoin Investment Thesis”, Fidelity Digital Assets demonstrates how investors could increase the return on their portfolios by putting a few percent into Bitcoin.
Fidelity ran a simulation for a portfolio with this composition: a ratio of 60% in equities and 40% in fixed-rate assets.
Fidelity then introduced Bitcoin into these portfolios, ranging from 1% to 3%. The results of the simulation indicate that portfolios with a larger quantity of Bitcoin performed better than less diversified ones.
According to Fidelity, there is virtually no correlation between Bitcoin and other market assets.
Uncorrelated assets such as Bitcoin have many advantages for investors: they can, among other things, reduce price volatility without minimising returns.
The report acknowledges, however, that large-scale adoption could increase this correlation, which would significantly reduce the benefits of diversification.
Risky, but juicy and tempting
Fidelity also examined the impacts of a potential redistribution of cash from fixed income assets to Bitcoin.
The report argues that the steady decline in bond market yields could force asset managers to turn to riskier assets.
The BTC market is valued at $13.4 trillion. If BTC were able to capture a 5% share of traditional markets, its market capitalisation would increase by $670 trillion. If this percentage reaches 10%, the increase would be $1.3 trillion.
To achieve profitability, you have to be willing to take some risks. Portfolios do not perform well if they only hold ‘safe’ assets – volatility is also needed. Bitcoin managed to climb from nothing to reach an ATH of over $20,000 in just a decade: should we really continue to believe that BTC has just been lucky for 10 years and that its value will eventually take an irreversible nosedive? Unlikely.
A consultant since 2013 for a important advisory cabinet, I wanted to specialise in emerging tech… crypto found me!