Bloomberg Intelligence crypto market analyst Jamie Coutts says investors will soon start shifting traditional bond investments to Bitcoin (BTC) due to one key factor.
Coutts says that in the face of US dollar debasement, Bitcoin is a better performer than bonds.
He looks at the performance of bonds and other assets like Bitcoin versus the US “M2” money supply, which is a collection of cash, personal savings and market accounts accessible to consumers.
“And if allocators want to outpace monetary debasement, over most timeframes, bonds are not the place to be.
Substitute any money aggregate for the denominator and you get the same results. Here I am using US M2.”
According to Coutts, traditional investment portfolios would have performed better with just a small percentage of Bitcoin at the expense of bonds during the past seven years.
“In the years ahead it’s conceivable that allocators begin to shift towards better debasement hedges. BTC is an obvious choice. We can see a scenario in the coming years when Bitcoin begins to infiltrate global portfolios at the expense of bonds.
History shows a small allocation would have helped a diversified portfolio across all return and risk-adjusted return measures. We ran simulations for the traditional 60/40 portfolio (US equities and bonds) as a benchmark, comparing it to our own 60/39/1 portfolio which includes 1% of Bitcoin at the expense of bonds. This shows an excess return of 10.58% (1.32% annualized) over the backtest period (2015-2022).
Most notable is the increase in risk-adjusted returns: the Sharpe ratio improves from 0.604 to 0.664 while the maximum drawdown hardly changes. Although an improvement, the 60/39/1 still underperformed the level of M2 debasement over the period by 4%.
Conclusion:
- BTC volatility is slightly down while other assets are up.
- Based on history, an appropriately sized BTC position holding through the full cycle/s has led to risk-adjusted returns.
- Allocations may come from bonds in future years.”
Bitcoin is trading for $27,068 at writing, up 2.9% in the last 24 hours.
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