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Alternative Market Briefing

Swiss fund of crypto hedge funds celebrates first year with 231% return

Tuesday, December 14, 2021

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Marc D. Seidel
B. G., Opalesque Geneva for New Managers:

If diversification is one of your most important investment rule, there is an element that can be added to a portfolio for diversification's sake according to a consensus of experts, and that is cryptocurrency. Yes, it is highly volatile and it will add volatility to your overall basket. But its peaks seem to more than make up for its troughs. Furthermore, it seems to be completely uncorrelated to any other asset such as stocks, bonds, real estate, or precious metals.

A 2020 study by Bitwise notes that, assuming quarterly rebalancing, adding between 1% and 2.5% bitcoin to a portfolio of 60% stocks and 40% bonds from 2014 to March 2020 added 1% to 2.3% to annual returns without a significant increase in portfolio volatility or drawdown, reports CAIA. An allocation of over 5% allows the high volatility of bitcoin to overwhelm the rest of the portfolio and substantially increase volatility and drawdown statistics.

The expected extra returns explain cryptocurrencies' appeal to some large investors, ......................

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