Crypto is almost entirely uncorrelated to traditional assets.
Crypto’s market cap could grow over 10x and still be valued at a fraction of traditional assets.
The potential for growth far exceeds the investment risk.
As crypto and blockchain assets become more mature, the asset class will become more difficult to ignore. Including crypto assets in a balanced multi asset portfolio can have substantial benefits to the performance potential of the entire portfolio.
Even though there are risks associated with the asset class, the diversification, uncorrelated behaviour, and asymmetrical return characteristics make it an invaluable inclusion in a multi asset portfolio. Even a small weighting in crypto assets will create material upside, with negligible portfolio downside risks.
A small allocation in cryptos can have a significant effect on the performance of a diversified poruolio, with very livle effect on the downside if risks materialise. Most asset allocation approaches will prescribe a 2-3% allocation in cryptos to low risk poruolios, where capital preservation is the underlying risk objective.
There is still enormous potential for further growth. Crypto assets represent less than 0.2% of the global asset base. This market is still in its infancy, and can easily reach USD trillions in the next few years.
The potential for growth multiple times of the current market size, creates an asymmetric return profile where the prospective of returns are greater than the risks
The Sortino ratio is a measure that compares the historical returns relative to the historical risk of an asset. An optimal portfolio aims to combine uncorrelated assets with high Sortino ratios. The asymmetrical performance of cryptos gives it a very favourable Sortino ratio when compared to other asset classes.
The inclusion of crypto in a portfolio can provide an Investment Manager with an enhanced Efficient Frontier to achieve the best returns for risk in a balanced portfolio.