Fidelity Digital Assets (FDA) stated that the use of Bitcoin to diversify investment portfolios is particularly important when the global benchmark interest rate is close to or below zero. The FDA explained in its latest Bitcoin investment paper that the opportunity cost of not being allocated to Bitcoin is higher. The FDA’s statement was found in an investigation that as many as 60% of the investors surveyed believe that digital assets have a place in their investment portfolio.
As a result, Fidelity Digital Assets stated that in the current uncertain period, a diversified investment portfolio must consist of assets that lack correlation with traditional assets for a longer period of time. According to the FDA’s investment paper entitled “The Role of Bitcoin as an Alternative Investment”, only a few assets have this attribute, and Bitcoin is one of them.
In the paper, the FDA urged “investors who wish to re-adjust their investment portfolios to evaluate the effectiveness and impact of the allocation of bitcoin to determine whether it can play a role in a multi-asset portfolio.”
From January 2015 to September 2020, the correlation analysis between Bitcoin and other assets shows that the average number is 0.11. According to the FDA, this figure shows that “the return of Bitcoin has little relationship with other assets.” The lower correlation is the first encouraging sign of using portfolio diversification tools to evaluate alternative investments.
This low correlation may be the reason why listed companies add Bitcoin holdings to their portfolios. After Square announced that it had purchased $50 million worth of bitcoins, Stone Ridge Holdings Group (SRHG) joined the exclusive organization. He previously revealed that the New York Digital Investment Group (NYDIG) will represent its 10,000 bitcoins worth $114 million.
At the same time, according to data on bitcointreasuries.org, the number of publicly traded companies holding Bitcoin as a reserve asset has now increased to 18. The 18 companies collectively hold 612,944 BTC, which is equivalent to 2.92% of the total supply.
The continued acceptance of Bitcoin by large investors fits very well with the FDA’s earlier view, which believes that digital assets are alternative stores of value.
However, despite the conclusions of the FDA and other agencies, some critics believe that the excitement caused by institutional investors buying Bitcoin is nothing more than hype aimed at pushing up the price of BTC.
Twitter user Cryptowhale responded to the announcement by Stone Ridge Holdings and said:
“Institutions are happily showing off their small positions in Bitcoin to create hype and eventually abandon ignorant retail investors. This is a deceptive strategy Wall Street has been using in the stock market for decades, and every time effective!”
Cryptowhale recommended that institutional investors “have stored cryptocurrencies at extremely low prices a few years ago.” Critics explained: “No one is forced to disclose their BTC position to the SEC, and when they do, you should start to question what their real agenda is.”
Since Square’s announcement, Bitcoin has risen from less than $10,500 to the current $11,350 per coin.
What do you think of Fidelity’s latest investment argument? You can share your opinion in the comments section below.
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