The financial world is constantly evolving, and sometimes this transformation takes us by surprise. But recent analysis from Jamie Coutts, cryptocurrency market analyst at Bloomberg Intelligence, highlights a shift that could have a significant impact on traditional investment portfolios.
According to Coutts, Bitcoin has proven to be a more robust refuge against the weakening of the US dollar, compared to bonds. To support his claim, the analyst studied Bitcoin’s performance relative to the US “M2” money supply, a mix of cash, personal savings and market accounts accessible to consumers.
Coutts made an intriguing observation: “If allocators want to overcome currency devaluation, in many periods, bonds are not the place to be.” And he didn’t stop there. The analysis revealed that over the past seven years, traditional investment portfolios would have outperformed with just a small inclusion of Bitcoin, to the detriment of bonds.
Coutts’ prediction points to a trend: in the coming years, allocators are likely to start leaning more towards options that are efficient hedges against currency devaluation. Bitcoin stands out as an obvious choice in this scenario.
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. pic.twitter.com/L3tLXEhLWZ
— Jamie Coutts CMT (@Jamie1Coutts) September 28, 2023
To quantify this trend, Coutts and his team ran simulations using the traditional 60/40 portfolio (composed of US stocks and bonds) as a reference. They compared it to a 60/39/1 portfolio, which includes 1% Bitcoin over bonds. The result? An excess return of 10.58% (1.32% annualized) over the 2015-2022 backtest period.
One notable finding was the increase in risk-adjusted returns. The Sharpe ratio improved from 0.604 to 0.664, while the major pullback remained almost unchanged. However, it is essential to highlight that even with these improvements, the 60/39/1 portfolio still underperformed the level of M2 devaluation in the period in question, remaining 4% behind.
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