Digital Assets: As [60:40] Falters, Could Bitcoin Be An Alternative?
Stock and bond indices are both moving higher amidst record stimulus. They could head south in tandem as well.
The traditional, rule-of-thumb portfolio allocation of [60:40] between equities and bonds is under threat. With bond yields at record lows, and likely to remain there for a few years at least, and stocks at handsome valuations, investors need to be more creative with their portfolios. That often means more risk. But bitcoin is shaping up as a worthy alternative. (Forbes)
That’s because the alternative investment avenues below may not suit everyone.
The problem with other investment options
A flight from poor returns in bonds to stocks may not suit senior investors such as retirees.
Emerging market debt may look attractive but the yields may not justify the additional risk.
Most investors would be unable to manage the speculative nature of commodities over the long term. Besides, commodities do not pay any income.
What can investors do in the circumstances?
The Forbes article suggests that bitcoin’s current market structure and its recent price performance make it well cut out for a major role in portfolio diversification.
The market volatility of bitcoin plumbed a 23-month low of 0.028 is on October 4. On the price front, bitcoin has stubbornly held above the key psychological level of $ 10,000 for a record 74 days since its last close below that level.
All this, in the face of a wall of worry stemming from news such as a $ 300 million exchange hack and various legal steps against crypto executives and exchanges.
Bitcoin’s hash rate (aggregate computing power deployed across its network) and the number of active bitcoin wallets are both trending higher. These are important measures of the health of the bitcoin network.
The Forbes article also observes that the amount of bitcoin held in exchange accounts is at an all-time low of 2.641 million BTC. Note that the higher the amount held in these exchange wallets, the greater the risk of it acting like a supply overhang. A low balance indicates low selling pressure on the exchanges.
Bitcoin an alternative asset
It is now possible for a bitcoin investor to lend the cryptocurrency out on various platforms to generate an income stream via interest. The interest yields are much higher than those in the traditional markets such as bonds. This development has come about following the evolution of various financial infrastructure around crypto-assets.
Given bitcoin’s sterling returns over the last decade – it was the best-performing asset – it may be time to designate the cryptocurrency as an alternative asset.
However, for the average investor, transacting cryptocurrencies is not an easy task because of the unavailability of a vehicle like an ETF.
That may change soon, given rising levels of crypto adoption and a visible thaw in regulatory restrictions surrounding crypto.
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