- After stating in 2018 that bitcoin has no place in investment portfolios, Bernstein Research’s co-head of portfolio strategy told clients on Monday that he changed his mind.
- Inigo Fraser-Jenkins said the political environment, debt levels and diversification options changed after the pandemic and made bitcoin more attractive.
- The strategist also said that bitcoin’s volatility has dropped significantly over the past three years.
- He recommended a number of portfolio strategies involving a small bitcoin allocation, along with US stocks and government bonds.
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Once a crypto skeptic, Bernstein Research’s co-head of portfolio strategy now says bitcoin should have a place in investors’ wallets.
“I’ve changed my mind about bitcoin’s role in asset allocation,” Inigo Fraser-Jenkins said in a Monday note to clients. His opinion comes as the coin hits new record highs and has seen gains of over 160% year to date.
But the most recent bitcoin rally isn’t exactly what changed Fraser-Jenkins’s mind. The strategist explained that the coronavirus pandemic has changed the political environment, debt levels and diversification options for investors and that all of this has made bitcoin an attractive asset.
The pandemic resulted in greater fiscal expansion and a greater likelihood of inflation and tax hikes. These political factors will increase the demand for bitcoin, Fraser-Jenkins said.
However, he also recognized a paradox that could harm bitcoin’s continued growth: “The greater role governments are likely to play in economies makes cryptocurrencies potentially more attractive. These same forces could also hinder cryptocurrency. Then governments could try to tie them down. “he said.
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However, Fraser-Jenkins doubts governments will outlaw cryptocurrencies. He said that for this to happen, cryptocurrencies would have to get in the way of the government’s reflationary policy efforts. At the moment, cryptocurrencies are too small to have an effect like this, Fraser-Jenkins said.
He added: “The appeal of cryptocurrencies is also what makes them potentially a nuisance to politicians. Cryptocurrencies have a place in asset allocation … as long as they’re legal!”
Fraser-Jenkins also changed his mind about bitcoin because cryptocurrency data changed from three years ago. The strategist said bitcoin’s volatility has dropped significantly over the past three years, which marks it as a more attractive store of value. Additionally, bitcoin’s relative volatility for both gold and equities has dropped to historically low levels, he said.
Fraser-Jenkins advises investors to add a small amount of bitcoin to their wallets. In all scenarios, investors should own 10-year S&P 500 and US government bonds. If the assumed average monthly return of bitcoin is above 3%, that is when investors would add bitcoin.
Fraser-Jenkins also acknowledged that given bitcoin’s recent rally, it may retreat in the near term, but its portfolio strategy is for investors interested in holding the coin for a longer period of time.