Bitcoin ETFs have recently entered the market, prompting investors to consider adding bitcoin to their portfolios. Ryan Rasmussen, senior crypto research analyst at Bitwise Asset Management, conducted a study that suggests a small allocation of bitcoin can significantly enhance the return of a traditional portfolio.
The Study Findings
According to Bitwise’s study, a standard portfolio consisting of 60% equities (represented by the Vanguard Total World Stock ETF VT) and 40% bonds (represented by the Vanguard Total Bond Market ETF BND) would have yielded a return of 77.6% from 2014 to 2023. This portfolio had an annualized volatility of 8.6% and experienced a maximum drawdown of 22.1%.
However, if a 5% allocation in bitcoin had been included, the portfolio’s return for the same period would have increased to approximately 169%. This represents more than double the total return of the portfolio. Importantly, this addition would have only raised the portfolio’s volatility, a key measure of risk, by 1.3 percentage points.
Ryan Rasmussen remarks, “It highlights how a small allocation to bitcoin can have a meaningful impact on the risk-adjusted returns of a traditional portfolio.”
Considerations
While these findings are compelling, it is crucial to acknowledge that past performance does not dictate future results. Bitcoin, which started with no value in 2009, has witnessed an extraordinary surge from 2014 to 2023. However, it is currently trading around $43,600, approximately 37% lower than its all-time high achieved in 2021.
Decentralized Exchanges Catch Up to Centralized Peers in Trading Volume
According to a study conducted by Bitwise, decentralized exchanges have seen a significant increase in trading volume and have caught up with their centralized counterparts in 2023. The decentralized platform Uniswap alone recorded a trading volume of $464.8 billion, nearly matching that of Coinbase. This shift can be attributed to investors’ dwindling confidence in centralized exchanges following the collapse of several crypto companies.
The Potential Reversal in 2024
Although decentralized exchanges have gained ground, the study suggests that Coinbase could regain its leading position in 2024. Bull markets tend to attract new users, and these newcomers typically opt for interacting with centralized exchanges. This pattern may drive the resurgence of Coinbase as the preferred exchange platform.
Rising Demand for Crypto Asset Custody
The introduction of bitcoin ETFs in the United States has fueled demand for custody services for digital assets. Gavin Michael, the CEO of Bakkt, a prominent crypto custody and trading company, observed a surge in the demand for digital asset custody after the launch of bitcoin ETFs. Institutional participation has notably increased as a result.
Diverse Use Cases for Crypto Custody
Different companies and institutions require crypto custody services based on their unique needs. For instance, crypto miners seek secure storage options for their mining rewards. Additionally, non-custodial crypto exchanges rely on custody services for settlement purposes. Family offices and other financial institutions also require custody services following their investment in digital assets.
FTX Customers Can Expect Full Repayment
Several media reports, citing lawyers overseeing the FTX crypto exchange’s bankruptcy proceeding, claim that approved customers and creditors may receive full repayment. Unfortunately, the bankruptcy team was unable to find a buyer to revive the exchange, despite efforts to do so.
Crypto Snapshot
Bitcoin has experienced a 6.9% increase in value over the past seven days, while ether has gained 3.9% during the same period, according to CoinDesk data.
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