Even with high volatility, traditional investors with a 60/40 stock and bond portfolio should distribute 4% of their portfolios to bitcoin (BTC), as the asset is “beginning to mature as a store of value,” according to an investment planner at digital asset management firm CoinShares.
In discussion with Bloomberg Radio, James Butterfill said that an allocation of 4% is the optimal level because it represents a “sensible increase in risk that investors are willing to take,” with about a 1% increase in annual volatility.
The same communication was also shared in a separate report from CoinShares announced on Monday, where the firm shared more details on its proposed investment strategy.
‘Dirty Little Secret,’ Bitcoin, Needs 4% In A Portfolio – CoinShares 102
In the discussion, Butterfill added that “various strategies” can be used by traditional investors to mitigate some of the volatility that comes with holding BTC, including “quarterly rebalancing” as the digital asset either rises or falls in the price:
“You would be selling off if you make a profit each quarter, and buying more if you lose some,”
the strategist said, adding that “rebalancing each quarter helps mitigate that volatility problem.”
On the inquiry of why the firm has chosen to focus on bitcoin rather than other crypto assets or even firms that work with blockchain technology, Butterfill said that he sees bitcoin as “a bit like the US dollar, as the reserve currency of the crypto world,” while also revealing that most questions they get from clients are about bitcoin explicitly.
And when asked more about his outlook on the number one cryptocurrency, the investment strategist admitted that bitcoin, “like every other risk asset,” sold off in March when the COVID-19 crisis hit financial markets.
“I think you have to understand where bitcoin is going in the coming years, and we believe it’s slowly changing into a store-of-value, a bit like gold,” he clarified.
“Now, that means it will always polarize opinions. Some investors will always say it doesn’t have any particular use. You can argue the same for gold. Nonetheless, people see it as a store-of-value. And we think that’s what is slowly happening in the bitcoin space,” the CoinShares strategist added, admitting that owning bitcoin is seen as “a dirty little secret” among some institutional investors.