Bitcoin vs. Bonds: A New Perspective on Asset Allocation

Bitcoin's Emerging Role in Asset Allocation

Bitcoin is gaining attention as a promising alternative to traditional bonds, particularly in the context of US dollar debasement. Recent analysis suggests that Bitcoin may offer superior performance in this evolving economic landscape.

Shifting Volatility Profiles

Since 2020, there has been a notable shift in the volatility of global assets. Bitcoin and Gold have experienced a decrease in volatility, with Bitcoin's dropping by 52%. Conversely, global fixed income and equities have seen volatility increases of 53% and 33%, respectively. This trend highlights Bitcoin's potential stability compared to traditional asset classes.

Bitcoin's Risk Diversification

Bitcoin's volatility has been gradually declining since 2017, despite macroeconomic challenges like rising U.S. dollar strength and Treasury yields. This positions Bitcoin as a viable risk diversifier that could enhance risk-adjusted returns. During the last two bear markets, Bitcoin outperformed fixed income and some equity markets on a risk-adjusted basis.

Strategic Portfolio Adjustments

The argument for Bitcoin as a hedge against monetary debasement is growing stronger. Allocators might consider including Bitcoin in their portfolios to improve performance. A hypothetical portfolio change, adding 1% Bitcoin at the expense of bonds, demonstrated significant excess returns and improved Sharpe ratios between 2015 and 2022.

Current Market Performance

Bitcoin recently traded at $27,068, reflecting a 2.9% increase over 24 hours. This uptick underscores its potential as a dynamic asset amidst market fluctuations. As investors seek diversification and better hedges, Bitcoin's role in asset allocation is poised for further exploration.