Mainstream financial entities are beginning to see Bitcoin as a non-correlated asset, a concept Morgan Creek Digital Co-founder Anthony Pompliano has been promoting for over a year.
"If Bitcoin is not likely to correlate to economic factors, or to traditional equities and fixed income securities, then Bitcoin could serve as a portfolio diversification tool," said chief economist at the Chicago Mercantile Exchange Bluford Putnam said in a Feb. 11 video on Finbold.
Bitcoin's price does not move in stride with traditional marketsSince Bitcoin is a new kind of borderless and decentralized asset, it makes sense that it would not track the same price fluctuations seen in traditional markets, such as stocks and bonds.
"The most important part of Bitcoin, when it comes to the global hedge, is the fact that it's a non-correlated asset - meaning that, as stocks go up or down, Bitcoin doesn't have correlation to that," Pomp told Cointelegraph in an earlier interview.
Traditional market managers are just catching on nowOver the years, various people have knocked Bitcoin as a viable stable portfolio option due to the asset's wild price fluctuations.
In spite of Bitcoin's volatile price action Putnam said the coin's lack of mainstream correlation might make it a valuable, albeit small, addition to portfolios.
"Since Bitcoin is highly volatile, only a very small allocation - say, 2% of the portfolio - might reduce risk if the lack of correlation holds," Putnam said.
According to 2019 experimentation, Putnam said adding 2% Bitcoin to the mix slightly reduced overall risk.
"The portfolio for potential diversification also shows up in how Bitcoin prices might behave if geopolitical events destabilize traditional markets and created uncertainty."
In August 2019, Pompliano forecast that Bitcoin would make its way into all institutional portfolios eventually.
CME's Chief Economist Echoes Pomp's Views on BTC as Hedge
Published on Feb 11, 2020
by Cointele | Published on Coinage
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