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Bitcoin fared better than the world’s largest hedge fund based on its risk-adjusted returns, Messari reveals in his recent research note.
The data analytics platform noted that Bitcoin’s Sharpe Ratio, a barometer that measures the performance of an investment with a risk-free asset (such as US treasuries), by adjusting its risk, is “3”. By comparison, Bridgewater has a Sharpe Ratio of 1.48 for its “all seasons” portfolio that contains cash, stocks, bonds and gold.
Growth of Bitcoin
Experts agree that a Sharpe ratio reading above “1” for an asset shows its potential to perform well in all market conditions. Therefore, equities and real estate appear stronger due to their lower correlation with traditional assets, mainly metals and bonds. The following chart illustrates the same.
Bitcoin has the highest Sharpe Ratio compared to traditional assets. Source: Messari
Mira Christanto, the author of the Messari report, noted that Bitcoin showed the lowest correlation compared to other asset classes such as stocks, gold, crude oil, etc. For the past three years. This has increased the attractiveness of cryptocurrency among investors due to its ability to offset the potential loss of an investment portfolio.
“Sovereign wealth and pension funds are paying attention [to Bitcoin]”The researcher added.” They understood this opportunity and initiated new allocation strategies to maximize long-term value.
Post-March 2020 Sale
The Messari report also appeared as Bitcoin’s correlation with traditional assets increased after the global market drop in March 2020. The period saw the cryptocurrency follow stock market movements almost in unison. However, he expressed his bias on multiple occasions, showing that the positive correlation was – at best – zigzag.
Ms. Christanto stated that Bitcoin remains minimally correlated with the major markets. For example, with the S&P 500, its correlation efficiency is only 0.19 on a scale of -1 to +1.
Bitcoin has the lowest correlation with traditional markets. Source: Messari
This also allows investors to look at Bitcoin as a hedge against the rest of their portfolio full of related assets. Messari cited some names whose strategies to restructure their investments by allocating more cryptocurrencies have worked in their favor.
For example, Nasdaq-listed software company MicroStrategy (MSTR) converted $ 425 million of its cash reserves into Bitcoin in two consecutive trading rounds. The period between the two announcements saw its market capitalization appreciate by $ 494 million.
“The price reaction indicates that investors want exposure to BTC and expect further price appreciation,” Ms. Christanto wrote. “Indeed, MSTR made more profits in two months with their BTC allocation than in 3.5 years of activity. “
The attractive risk-adjusted return has also attracted global payments firm Square to restructure its balance sheets with an allocation of $ 50 million in Bitcoin. There are now sixteen companies holding a total of 81,054 BTC units in their reserves.
Bitcoin rallies on expanding institutional adoption. Source: BTCUSD on TradingView.com
Bitcoin’s price has risen nearly 250% since its mid-March nadir of $ 3,858.
