Bloomberg Intelligence crypto market analyst Jamie Coutts has suggested that Bitcoin (BTC) could potentially become a better performer than traditional bonds in the face of US dollar debasement. The analyst's remarks on Thursday were part of an extensive discussion on the future of market volatility and the evolving role of Bitcoin in global asset allocation.
Coutts noted that there has been a noticeable change in the volatility profiles of global assets compared to Bitcoin since 2020. He pointed out that hard assets like Bitcoin and Gold are the only assets that have seen a decline in their volatility profiles, with Bitcoin decreasing by 52% and Gold by 16%. On the other hand, global fixed income assets and equities have seen their volatilities increase by 53% and 33%, respectively.
Further discussing Bitcoin's volatility, Coutts indicated that excluding its early years (2011-2014), the cryptocurrency's volatility has been on a slight downward trend since 2017. This is noteworthy, he said, especially given the macroeconomic factors at play including rising U.S. dollar and 10-year Treasury Yields, along with a declining global M2 money supply.
Despite this short-term outlook, Coutts argued for Bitcoin's potential as a risk diversifier that can improve risk-adjusted returns. He cited significant improvement in Bitcoin’s risk-adjusted returns during the last two bear markets. By 2022, it had outperformed fixed income and some equity markets on a risk-adjusted basis.
Looking ahead, Coutts suggested that asset allocators might begin to shift towards better hedges against monetary debasement. He identified Bitcoin as an obvious choice for this role over most timeframes. He further argued that traditional investment portfolios would have performed better with just a small percentage allocation to Bitcoin at the expense of bonds during the past seven years.
Coutts illustrated this by comparing a traditional 60/40 portfolio (US equities and bonds) to a 60/39/1 portfolio which includes 1% of Bitcoin at the expense of bonds. The latter showed an excess return of 10.58% (1.32% annualized) over the backtest period (2015-2022), with the Sharpe ratio improving from 0.604 to 0.664.
As of Thursday, Bitcoin was trading for $27,068, marking a 2.9% increase in the last 24 hours.
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