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A note from the road: Questions about Bitcoin are shifting

Notes from the CIO

Bitcoin skeptics have used a variety of arguments over the years to discredit BTC as an investable asset, often using the same three points of view: it’s only a speculative bubble, it has no value, and it’s mostly used for criminal activity. 

While these have certainly been fair questions to ask, especially in the very early years of Bitcoin, each of these arguments have been effectively debunked over time1. However, these views continue to pop up, even among some seasoned and sophisticated investors

But are these questions still the ones that matter to most investors? 


New questions for a new era 

Over the last several weeks I’ve been meeting with family offices, private banks, and financial advisors. One thing I’m realizing is that—especially in the wake of bitcoin ETFs in the US—the questions from these professional investors are changing. Their clients, whether in the US, Europe, or Latin America, are clearly taking BTC very seriously.  

This time, no one in these meetings asked about BTC being a new iteration of Tulip mania or if they would be supporting illicit activity by investing in crypto assets. And not one advisor suggested BTC has no value. 

Instead, the questions I’ve been getting are around how to fit a volatile asset like BTC within traditional 60/40 portfolios, how to size a potential bitcoin allocation, and how much potential upside remains. On these points, here’s what we are emphasizing with potential investors:

First, while many of the professional investors I spoke with have trouble seeing the role of BTC within traditional portfolios given its high volatility and large drawdowns, there are ways to improve risk-adjusted returns and reduce maximum drawdowns. For example, in Brazil, we have products that automatically rebalance the portfolio on a daily basis or have the additional benefit of a dynamic allocation to the Nasdaq Crypto Index. 

What might be more important in managing the volatile nature of bitcoin is taking a long-term view. Our analysis shows that if a BTC allocation is held for 3 years, portfolio returns increase 98% of the time with a better Sharpe ratio than a 2-year or 1-year holding period. We believe high volatility will remain a fixture of bitcoin for the foreseeable future, but as institutional investors continue to enter the market over time this will come down. 

Additionally, as bitcoin becomes more institutionalized, it will continue to prove itself to be an effective portfolio diversification tool as well. As noted in the chart below and in a recent article from our Research Team, BTC’s post-COVID correlation to other assets—including tech stocks—is more a result of monetary shocks than a long-term trend.  


Monetary shocks drove BTC’s high correlation with tech stocks 


Source: Hashdex Research with data from Bloomberg (from December 31, 2013 to March 11, 2024). Bitcoin is represented by the XBT Index from Bloomberg.

Second, regarding the right allocation size, this is something that is specific to individual risk tolerances. However, our recent research shows that increasing an allocation to BTC consistently led to higher average returns alongside higher average Sharpe ratios2. For example, a 2% BTC allocation increased average portfolio returns by 1.9% per year with only 0.14% in additional volatility, improving the Sharpe ratio by 0.71. You can learn more about the impact of a potential bitcoin allocation within traditional portfolios from our study available here or by using the Hashdex Portfolio Simulator.


Risk x Return for 1-5% BTC Allocation Held 3 Yrs in 60/40 Portfolio, Rebalanced Quarterly 

Source: Hashdex Research


Finally, regarding whether more upside remains for bitcoin, we believe the bull market remains in its early stages and there is plenty of opportunity for investors considering a first-time allocation. Bitcoin ETFs have led to an unprecedented boom in demand, but we believe many financial advisors, as well as large brokerage platforms, corporations, and institutions will slowly enter the market in the coming months and years. This demand, along with the upcoming halving3 (learn more at our upcoming halving webinar) and potentially favorable macro conditions, are creating an enticing entry point. As I mentioned in my last Notes from the CIO, we could see bitcoin testing the $200,000 - $300,000 range throughout 2025.


Bitcoin is moving beyond its recovery phase


Source: Hashdex Research with data from TradingView (accessed March 13, 2024). Past performance is not a guarantee of future results.


The biggest takeaway from my recent meetings is that BTC has clearly become part of the investable universe for financial professionals. We are no longer spending time debunking myths about bitcoin’s illicit uses or whether or not this is a real asset class. Most investors have moved beyond these old arguments and are ready to learn more. 

We’re grateful to be part of these important conversations and remain excited to continue our educational efforts and give investors the confidence they need to get exposure to this incredibly promising asset class. 


1 Read about the most common Bitcoin myths here.

2 Assuming quarterly rebalancing and a 3-year holding period on a 60/40 portfolio.

3  The next Bitcoin Halving is scheduled for April 20, 2024. These events occur roughly every four years and cut the block reward for miners in half, reducing the supply of new bitcoin entering the market.



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