Every Financial Portfolio Should Include Bitcoin, New Research Paper Suggests



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The viability of investments into cryptocurrencies is a hotly debated topic. While many investors large and small are still skeptical about virtual currencies like Bitcoin, a growing number of people are starting to come around.

In many nations, especially ones fraught with economic and political instability, virtual currencies offer an alternative way to hedge against a failing financial climate.

But cryptocurrency investment is also taking off inside of nations with advanced economies. A March survey from South Korean news agency Yonhap said those in their 20s were the front runners when it came to buying digital currency.

Early in June, a survey from German retail bank Postbank found how about 30% of people saw virtual currency as a desirable investment opportunity. Almost half of those polled were between 18 and 34.

Even some traditional financial institutions are starting to look into virtual currencies. Andreessen Horowitz is reportedly looking into starting a fund specifically to exchange crypto assets.

A new working paper from the National Bureau of Economic Research also praises Bitcoin’s investment potential. The study, written by professors Aleh Tsyvinski and Yukin Liu, recommends holding at least 6% of Bitcoin in a portfolio for an optimal construction.

Banking on Bitcoin

Both authors point how the risk-return trade-off of virtual currencies like Bitcoin and Ethereum sharply differ than traditional investments like stocks and currencies.

They note how digital currencies have no exposure to “most common stock market and macroeconomic factors” and to the “returns of currencies and commodities.”

According to the study, entitled Risks and Returns of Cryptocurrencies, Sharpe’s ratio was utilized to show how cryptocurrencies have a higher potential for returns even though they are more volatile. The two researchers only looked at Bitcoin, Ethereum, and Ripple to come up with their results.

Overall, Tsyvinski and Liu said an optimal portfolio would have at least 6% of in Bitcoin. For those who might be less interested in the cryptocurrrency, 4% was the suggested amount of investment.

No matter what, the duo wrote how Bitcoin should be 1% of everyone’s portfolio as a diversification strategy.

Investment Optimism Trending Up

Some other financial figures have also started to come out to tout the benefits of investing in Bitcoin.

Bart Smith, the head of trading at Susquehanna Investment Group, told CNBC in mid-July how he saw Bitcoin as the top virtual currency and praised its use as a medium of exchange compared to traditional banks.

Grayscale Investments, the firm behind the Bitcoin Investment Trust (OTC: GBTC) said in mid-July how they were adding almost $10 million in new weekly investments.

They said a majority of money came from institutional investors, and noted the average weekly investment into the Bitcoin Investment Trust was $6.04 million, as of July 18th.

Featured image from Shutterstock.

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