Parameters of the Bitcoin network indicate a growing demand, which the price does not reflect. In various simulations, Bitcoin brings diversity and better returns to portfolios.
In recent days, Bitcoin has maintained its position, fluctuating in a narrow range around USD 11,400, amid signs of interest from institutional investors. Even with a price variability of just 0.88%, some analysts consider that Bitcoin would already be in a new cycle of volatility. Google Finance also positioned Bitcoin as the first world currency.
Kraken’s research unit published a study that suggests that Bitcoin would have entered a new phase of volatility, beginning with minimum volatility of 23%. According to the document, there are also signs of greater demand for Bitcoin, such as the sustained growth of active addresses, since March, and the 50% increase in Bitcoin processing, since early 2020.
The study shows discrepancies between the fact that there are almost a million active addresses, a milestone surpassed only in December 2017 and January 2018, and that Bitcoin’s prices have not advanced similarly.
Institutional Interest in Bitcoin Increases
Stone Ridge Asset Management recently acquired USD 110 million worth of Bitcoin. The company offers custody services for Bitcoin through its subsidiary New York Digital Investment Group (NYDIG), which offers cryptocurrency-related services in the state of New York.
Investments like those of Square, MicroStrategy, and Stone Ridge are not the only ones that reflect the growth of institutional interest in Bitcoin. Around 18 publicly traded companies have openly expressed their trust in the cryptocurrency. They see it as either a strategic treasury reserve or as a means to build investment funds in Bitcoin. This consolidates Bitcoin as an institutional investment medium.
Firms have acquired around 612,944 BTC to conduct these institutional investment plans, which exceeds USD 7 billion, at the time of writing this article. According to the companies that have disclosed their investment plans, they devote 3.31% of the total Bitcoin supply to institutional investments.
The institutional investment in Bitcoin by Grayscale, CoinShares, and MicroStrategy accounts for 91% of the total amount. Square is in seventh place in terms of the amount of BTC invested, but it is the most important regarding market capitalization, which has risen to USD 82.65 billion.
Bitcoin in Traditional Investment Portfolios
There are various scenarios of the inclusion of Bitcoin in traditional asset portfolios, with a distribution of 60% of shares and 40% of bonds, according to several studies. The most recent study by Fidelity Digital Assets analyzes the profitability of including various percentages of Bitcoin in a traditional portfolio.
The study analyzes and characterizes alternative assets, precisely those that portfolio managers use to diversify their investments. These assets generally have a higher level of risk, but more attractive returns than traditional assets. What distinguishes these assets is their low correlation with professional assets, according to the research.
The authors say that Bitcoin meets the characteristics of alternative assets since its correlation with seven traditional assets is remarkably small: 0.11.
Regarding the different inclusion percentages of Bitcoin, there are the resulting returns and the variations in volatility and the Sharpe Ratio, a parameter that measures the effectiveness of the investment.
By Alexander Salazar
