How Bitcoin Benefits From Global Stresses

In today’s volatile economic climate, investors are facing a multitude of risks that threaten their stock and bond returns. These risks include deficits, inflation, war, bank failures, cyber attacks, and de-dollarization. Historically, U.S. Treasuries have been considered a safe haven for investors, but recent years have seen a decline in their performance. This has left investors wondering what they can do to protect their portfolios in an increasingly uncertain world.

In his book “Anti-Fragile,” author Nassim Taleb explores the concept of things that thrive on disorder. These are assets that actually benefit from volatility and uncertainty. One such asset that has been gaining attention in the investment world is bitcoin. In this article, we will delve into the potential benefits of adding bitcoin to a diversified portfolio and how it may serve as an anti-fragile asset.

One of the key characteristics of an anti-fragile asset is its ability to thrive under stress. Bitcoin has proven to be resilient in the face of various challenges. For example, when the Chinese government banned bitcoin mining in 2021, it caused a significant disruption in the network. However, within seven months, the network had fully recovered, and it is now even stronger than before.

Similarly, when the world’s second-largest crypto exchange declared bankruptcy and the largest exchange was sanctioned by the U.S. Department of Justice, bitcoin network transactions were unaffected. This demonstrates the network’s ability to withstand external pressures and continue to function effectively.

Not only has the bitcoin network shown resilience under stress, but the asset itself has also performed well in the past few years. In fact, it has outperformed all other asset classes over the last 1, 3, 5, and 10 years, including periods of economic stress. This makes it an attractive option for investors looking to diversify their portfolios and potentially mitigate risk.

Research from Galaxy shows that adding just a 1% allocation to bitcoin in a portfolio consisting of 55% S&P 500, 35% Bloomberg U.S. Agg, and 10% Bloomberg Commodity would have resulted in higher returns and better risk-adjusted returns over a 5-year period from August 2018 to August 2023. This allocation had virtually no impact on volatility or maximum drawdown, making it a low-risk addition to a diversified portfolio.

The growing interest in bitcoin as an anti-fragile asset is evident in the recent moves by institutional investors. Fidelity, one of the largest asset managers in the world, has added bitcoin to its diversified ETF portfolios in Canada. The Conservative ETF now has a 1% allocation to bitcoin, while the Growth ETF has a 3% allocation. This move by Fidelity is a significant endorsement of bitcoin as a legitimate asset class.

In the U.S., there are now several bitcoin ETFs available, such as the Franklin Templeton EZBC and iShares IBIT. These ETFs make it easy for U.S. investors to add bitcoin to their portfolios and potentially benefit from its anti-fragile characteristics.

In conclusion, the risks of deficits, inflation, war, bank failures, cyber attacks, and de-dollarization are looming large for investors. In such an uncertain world, it is essential to consider adding anti-fragile assets to a diversified portfolio. Bitcoin has shown resilience in the face of stress and has outperformed all other asset classes in recent years. Research suggests that even a small allocation to bitcoin can improve portfolio returns and risk-adjusted returns without significantly impacting volatility or maximum drawdown. With institutional adoption on the rise, it may be worth considering adding bitcoin to your portfolio as a potential hedge against economic uncertainties. 

Source:

– CoinDesk. Read More