Crypto is almost entirely uncorrelated to traditional assets.
Crypto Market Cap could grow over 10x and still be valued at a fraction of total traditional assets.
While crypto is often seen as a risky investment, compared to traditional assets, the potential returns completely dwarf any perceived risk.
As a rapidly maturing asset class, crypto and blockchain-based assets are increasingly difficult to ignore. Considering the potentially lare ROI, crypto is quickly becoming a staple part of a balanced, multi-asset portfolio. While a challenging asset to wrap your head around, those willing to invest a little knowledge have the potential to realize impressive gains.
Even though there are risks associated with crypto, these can be overcome through smart investing strategies. Crypto's isolation from the rest of the market combined with its asymmetrical return characteristics make it a vital part of any multi asset portfolio. Even just setting aside a small percentag of your portfolio for crypto can lead to significant material upside, with negligible downside risks.
A small allocation in crypto can significantly improve the performance of a diversified portfolio. At the same time, if negative risks do materialize, it’s unlikely they will have an outsized impact. Most asset allocation approaches will suggest a 2-3% allocation in crypto to low risk portfolios, where capital preservation is the primary objective.
Crypto assets represent less than 0.2% of the global asset base. This means that, relatively, there is a lot of room for crypto to grow. The market is still in its infancy, and it could easily be worth trillions of dollars in the coming years.
The potential for growth multiples times that of the current market size creates an asymmetric return profile, where the prospective returns are greater than the risks.
The Sortino ratio is a measurement tool that compares an investment’s relative historic returns and risks. The higher the ratio, the greater chances there are for significant gains. An optimal portfolio aims to combine uncorrelated assets with high Sortino ratios. Compared to other asset classes, the asymmetrical performance of crypto gives it an exceedingly favorable Sortino ratio.
The inclusion of crypto in a portfolio can provide an investment manager with an enhanced efficient frontier, offering up a greater potential for reward within a balanced portfolio.