Research: Bitcoin Provides Great Diversification Benefits For Multi-Asset Portfolios

New research by the world’s top crypto exchange, Binance, indicates that portfolios that include Bitcoin exhibited overall better risk-return profiles than traditional multi-asset class portfolios.

Binance Research Delves Into Portfolios

The research division of Malta based Binance has been analyzing different portfolio structures to ascertain the differences in risk-return profiles.

“#Binance Research analysis shows that including $BTC in traditional multi-asset class portfolios provides overall better risk-return profiles.”

The study concluded that for a decade, Bitcoin has been an extremely volatiles asset exhibiting large drawdowns. Conversely it has also had some of the largest price rallies in recorded history. Additionally there has been no significant correlation between BTC and other traditional asset classes such as commodities, equities, or fixed-income products.

Bitcoin has a number of advantages from a trading perspective as it is one of the most liquid assets on the planet. With consistently low spreads and high volumes trading venues are consistently being arbitraged it added. The report added:

“Binance Research simulated different Bitcoin allocation techniques in existing diversified multi-asset portfolios. All simulated portfolios which included Bitcoin exhibited overall better risk-return profiles than traditional multi-asset class portfolios. These results show that Bitcoin provides active diversification benefits for all investors worldwide, following multi-asset strategies.”

New institutionally focused investment products and crypto custody solutions have made Bitcoin an essential asset to be included in any portfolio for its diversification properties.

It is no surprise that BTC was declared highly volatile with annual returns in four figures for three of its ten year existence. Only in 2014 and 2018 did Bitcoin show a loss year on year. Because it is a nascent technology and asset with a null starting value it has experienced wild price fluctuations.

The report added that volatility is likely to decrease as the industry matures and new institutional products such as Fidelity Digital, ETFs, and mutual funds are launched. Expanding on correlation, the research compared BTC returns with other traditional assets such as the S&P 500, FTSE 100, oil, gold and silver. It concluded that Bitcoin would be a very good choice for those seeking diversification since it remains uncorrelated with all other non-crypto financial instruments and asset classes.

The research was Binance’s first report in a series on portfolio management. Irrespective of preferred asset class, BTC was found to provide diversification benefits leading to an improved risk-return profile for investors. It concluded that despite the simplicity of the strategies described, they all provided overall positive results from a risk/return perspective.

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