New Bitcoin study shows: This is why every investment portfolio should include BTC
After analysing a portfolio with and without Bitcoin, a study concludes that the „robustness check confirms the results and also argues that the cryptocurrency should be added to the portfolio.“
According to the study by economists at the University of Warsaw, the aim is to „check whether adding Bitcoin to the portfolio, which consists of various market assets, shifts the efficient frontier… We check whether Bitcoin is able to gain significant weight and improve the risk-return profile of the entire portfolio.“
And, „The empirical analysis is based on Bitcoin Revolution comparing the portfolios with and without Bitcoin in the context of two Markowitz criteria of optimisation.“
The researchers track the behaviour of the portfolio, which consists of 10 traditional assets (representing equity, fixed income, money market, commodity and real estate markets) over a period of time. Then they add bitcoin to it (Go to Plus500’s buy bitcoin guide) and look at performance.
„The historical observations cover the period from 1 May 2013 to 24 May 2019, giving us 73 months of daily prices of 11 assets.“
Bitcoin’s correlation with other assets through 2019
In line with numerous studies, they first find that Bitcoin is not correlated with other assets, making it a portfolio diversifier.
After much analysis, they then conclude that „including Bitcoin in the portfolio actually improves its efficiency.“
„Bitcoin-inclusive portfolios perform better than those consisting only of traditional assets,“ they conclude.
„The results are robust with respect to the various optimisation criteria in our study – expected mean return maximisation and expected shortfall (CVaR) minimisation. Adding Bitcoin to both Markowitz-optimised portfolios and an equally weighted portfolio improves their performance.“
The results are weighty enough for economists to recommend adding Bitcoin to an investment portfolio.
Several studies have come to this conclusion: bitcoin is a diversifier and increases risk-adjusted returns.
The conclusion of these studies was partly the basis for the entry of institutional investors, but their adoption was rather small, with pension funds, for example, not yet fully integrating Bitcoin into their investment strategies.
However, as these academic foundations continue to be built, financial advisors may move more and more towards recommending the inclusion of Bitcoin in investment portfolios (Go to buy Bitcoin cheap guide) in order to increase risk-adjusted returns.