Can Bitcoins Improve Portfolio Performance?

Apart from the general buzz that bitcoin surrounds itself, there have been fundamental cases that help in understanding that investment in this cryptocurrency is an important thing that impacts the portfolio’s performance of a person who is planning to invest or has invested in this cryptocurrency.

Controversy is not new for bitcoin’s presence in the market. After all, it enjoys the hype because of the big statements.

However, amid all the speculations, a huge chunk of institutional and high-profile investors have considered this currency to have excellent potential while on the path to becoming a long-term investment.

So, as an investor, many instances would have led you to invest in bitcoin. But, for one reason, you might have had double thoughts. Hence, to help you gain a better degree of clarity, let’s discuss the impact of bitcoins on an investor’s portfolio performance. It is of foremost importance in making decisions related to the future.

Viewpoint Related To Bitcoin

Source:retirement.johnhancock.com

The large-scale acceptance has helped bitcoin enjoy the status of bringing a major technological transformation. However, the cap related to the mining of 21 million bitcoins is something that many people debate. But as critics say, its value is rising, and many people recognize it as an alternative to gold metal.

The demand is increasing which is a result of the following factors:

  • Security in international transactions and promotion at the overseas level.
  • The banking cost for these transactions is less.
  • You can learn from different scenarios and trends.
  • Unique kind of experience.
  • There are options related to micropayments and payments related to general trading purposes.

However, its futuristic value owes its dependence to its widening acceptance and its credibility and use as an alternative form of currency.

However, it is held back because of the following reasons:

  • It does not generate cash flows in real.
  • It does have intrinsic value.
  • The value depends on the amount people are willing to pay against its owner.

Let’sLet’s look at some statistics that will help understand the investors’ decisions and the potential points that will help understand the role of bitcoin in an investor’s portfolio performance.

In the last quarter of 2018, bitcoin’s market value decreased and was 44% low. However, in the broad market, the difference stood at 14%. The US Market Index shows that the pandemic’s outbreak also led to a reduction in the price of this cryptocurrency, and approximately 38% of the value was lost. However, as they say, the same will happen when the good times roll, and bitcoin could see positive results.

Hence, no matter if there is a cap on the supply of this particular cryptocurrency, nothing can prevent this from mushrooming in the investment market.

The Portfolio Performance Angle

In simple words, the answer is YES. You can trust bitcoin to improve and diversify the portfolio. However, it would be best if you did not forget that different weightings have different impacts. It is dependent on the period. Let’sLet’s turn back to when the coronavirus pandemic hit in 2020. The rise of bitcoin during this period is because of its volatility. The volatility was at an all-time high. The rise was 4x.

Even if the weighting were at 10%, there would have been an increase in the standard deviation of the portfolio. Hence, a moderate amount will also positively impact the portfolio.

You can see the portfolio perspective if you find all these graphs and the growth process as a complication. The perspective highlights that you should know are related to a simple idea. This kind of cryptocurrency has emerged as an asset in its initial phase, which would allow a portfolio drift. Also, you should see the Sharpe ratio. It refers to the ratio of the investment portfolio and highlights the good and bad returns. The good and bad returns are based on the investor’s risk while investing the money. If this ratio is above 1, the impact is positive. Anything less than 1 will negatively impact the portfolio.

Bitcoin’s Role In Portfolio Diversification

Source:binance.com

The availability of various forms of investments helps investors get an edge and techround.co.uk highlights the role of diversifications and their impact on the portfolio in a commendable manner.

If the idea revolves around bitcoin, let’s move back to December 2017.

The prices were witnessing a dramatic fall. Even if it were added to an amazing portfolio, the returns would be subject to reduction. However, portfolio diversities such as gold and other commodities were helpful and shaped the Sharpe ratio for good.

The peak time of December 2017 showed that the returns related to bitcoin investments stood at 46%.

Hence, the speculations rise now and then, and facts unfold with each passing day. The characters of this kind of currency highlight two factors that are mentioned as follows:

  • It works as an excellent source that workers as a driver for various potential returns in due course of time.
  • It works as an excellent source to diversify the portfolio of the investor. It will act as a reliable source for the expansion of the portfolio in the future, as well.

Hence, these factors highlight that this source of investment is emerging as the best suited source for filling the gap between the different kinds of available diversities. It is the need of the hour. Hence, both the investors facing different kinds of troubles, issues, and changing scenarios, followed by the allocators of diversed and varied portfolios, experience positives. Also, it helps reduce the straight exposure to the economic cycles. These cycles are important in making investment decisions and expanding the available investment options to global investors.

Conclusion

Source:time.com

Conventional wisdom related to the emergence and popularity of cryptocurrencies, especially bitcoin, suggests that the returns have been nothing less than a fortune for some. But the substantial risk has been on the rise too. However, the silver lining is that it has emerged as an alternative form of asset or investment that helps to reduce the ever-rising pressure and exposure on the market.