Consider a portfolio with a target allocation of 5% bitcoin. If bitcoin’s allocation rises to 10% of the portfolio due to its outperformance relative to other assets, a disciplined rebalancing strategy would dictate selling bitcoin to bring its allocation back to the 5% target and using the funds to increase the allocation to other asset classes, which have drifted below their target allocation. If bitcoin underperforms and declines to 1% of the portfolio, investors would buy bitcoin and sell their position in other asset classes that are above their target allocation. An advantage of rebalancing is that it forces investors to have the discipline to buy low and sell high.
- Director of Research Ria Bhutoria wrote that the crypto’s current market capitalization “is a drop in the bucket compared with markets bitcoin could disrupt.”
- Bhutoria argued that while institutional inflows may damp bitcoin’s uncorrelated performance, the crypto is “fundamentally less exposed” to the “economic headwinds” that other assets will likely face.
- Bitcoin is therefore a “potentially useful” asset for uncorrelated return-seeking investors. “Consider a portfolio with a target allocation of 5% bitcoin,” she wrote.
- “In a world where benchmark interest rates globally are near, at, or below zero, the opportunity cost of not allocating to bitcoin is higher," the report said.
Submitted October 13, 2020 at 09:26PM by atrueretard https://ift.tt/373nLBy
