New research from Fidelity shows that Bitcoin is uniquely isolated from the movement of other asset classes and suggests how it fits into your portfolio.
Bitcoin has been operating unlike any other investment asset available on the market for the past five years, operating almost entirely independently, according to financial services giant Fidelity.
Fidelity Digital Assets, Fidelity’s crypto-focused arm, said today in a report that Bitcoin has virtually no relationship to the profits generated by other asset classes, including gold. and US stocks.
Furthermore, its report, part two of the company’s Bitcoin Investment Thesis, shows that investors hold 5% of their holdings in Bitcoin when exposed to alternative investments. It’s another indication that institutions are warming up digital gold and is taking note of its ability to provide unrelated profits regardless of external conditions.
The study for the Fidelity report was conducted by interviewing investors and industry experts from companies like ARK Invest, CoinShares and Fidelity Investments. In it, the company makes its case for “Bitcoin’s role as an alternative investment”.
Substitute investments are considered to differ from positions in public shares or fixed income instruments such as bonds. These asset classes provide a unique level of risk that is expected to change in price independent of other asset classes. According to Fidelity, alternative investments rose from 6 percent of the global investment market in 2003 to 12 percent in 2018 and are expected to grow to 25 percent by 2025.
Alternative assets appeal to investors with a multi-asset portfolio that has a diverse mix of stocks, bonds, and other holdings as they are more likely to retain greater value when traditional holdings are less effective. Multiple asset classes provide a smooth return over time, at the cost of missing out on a higher potential return if one or more specific assets outperform the market.
Fidelity research shows that Bitcoin as an investment vehicle has a correlation of just 0.11 with other assets on a 30-day rotating average from January 2015 to September 2020. The relationship ranges from 1 to -1, based on whether asset prices move step by step or not with content that is completely correlated or completely opposite to completely uncorrelated content.
The .11 score means that Bitcoin’s price has neither increased nor decreased from any asset class in 30 days, including asset classes like gold or the US stock market, which are often compared alongside BTC. Fidelity found that, over time, Bitcoin’s price changes have little to do with what other assets are doing, even when movements are sometimes correlated in the short term.
Based on their research, Fidelity recommends keeping 5% of the value in a multi-asset portfolio in Bitcoin as a means to reap greater returns over time regardless of market conditions.
“Consider a portfolio with a target allocation of 5% bitcoin,” the company said. If Bitcoin’s allocation rises above that mark, the company recommends selling some of those Bitcoins to rebalance your portfolio. If it falls below that mark, investors should buy. “One advantage of the rebalance is that it forces investors to buy low and sell high,” Fidelity said.
With the August launch of the Fidelity Bitcoin Index Fund, Fidelity continues to create a strong bull case for institutional investors participating in Bitcoin.
“Bitcoin is a single investable asset with an attractive difference from traditional asset classes as well as conventional alternative investments that could make it a beneficial addition to the reputation. investment item ”, the company’s report concluded.