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Analysis
27 Nov 2023

A little bitcoin goes a long way

Bitcoin is again shining as a portfolio diversifier, and reduces the risk in a traditional 60/40 portfolio.
BTC exposure 1- article image
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Throughout the past year, BTC exposure would have improved risk-adjusted returns in a traditional 60/40 portfolio due to softening correlations and solid upside. With ETFs simplifying access to BTC exposure, we expect diversification and risk-adjusted outperformance to be key go-to-market strategies from the various ETF providers. An investor holding 99% exposure in a traditional 60/40 portfolio and 1% in BTC would’ve seen 3.16% outperformance of an investor adhering to a 100% 60/40 exposure. In 2021, the outperformance peaked at 3.8%. Rebalancing of conservative exposure alleviated some downside impact during 2022, leading the outperformance to itch towards former highs.
BTC exposure 1% vs 3%
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Moderate bitcoin exposure is not risky; it does in fact, reduce risk
Bitcoin tends to improve risk-adjusted performance despite its vast volatility. The days of extreme correlations are behind us. BTC has resumed to a somewhat unpredictable path, independent of macroeconomic factors. This has implications as BTC again shines as a powerful portfolio diversifier. Defensive long-term savers could benefit from adding moderate BTC exposure to their savings. Out of the 978 days analyzed in our rolling Sharpe assessment, a 1% BTC allocation improved risk-adjusted returns 75% of the time. The period of underperformance was unsurprisingly in 2022, a period where BTC saw YTD returns of -68% while plunging in an unnaturally correlated environment.
BTC Sharpe Improvement
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Correlations have now vanished, while multiple ETFs are racing towards the market, with solid potential to attract capital from conservative investors aiming to improve the overall risk profile of its long-term savings.
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