Minor Bitcoin Allocations Boost Returns and Diversification: CoinShares

Anticipation of ETFs has driven the largest surge in inflows into digital asset investment products since late 2021, reaching $1.7 billion over nine consecutive weeks.

Bitcoin attracted over $1 billion in inflows last month, totaling $1.6 billion year-to-date. Following the footsteps of the world’s largest altcoin, Ethereum, too, recorded inflows of $126 million, marking a significant turnaround in sentiment.

The commonly held belief is that while Bitcoin has delivered impressive returns, it introduces significant risk – in the form of volatility – when incorporated into a traditional stock and bond portfolio.

However, CoinSharers’ research has unveiled intriguing aspects in terms of “a balanced investment portfolio.”

CoinShares’ Portfolio Review

In the latest blog post, the asset manager’s analysis found that even minor allocations of Bitcoin exert a disproportionately positive impact on risk-adjusted returns and diversification compared to other alternative assets.

Moreover, Bitcoin’s lack of correlation with traditional assets positions it as a valuable alternative investment, offering a means to mitigate exposure to economic cycles. It also observed that implementing quarterly adjustments (rebalancing) of Bitcoin back to its original portfolio weight can effectively curtail volatility and improve overall returns.

Bullish Sentiment Across Bitcoin and Ethereum Charts

The value of Bitcoin experienced a roughly 4% decline following Binance’s $4.3 billion settlement with the US Justice Department. However, it quickly rebounded the following day and has now surged to $44,000.

According to CoinShares, this upward momentum is attributed to the “clearing of bad actors” in the industry, indications from the Federal Reserve suggesting the conclusion of interest rate hikes, and the imminent approval of a spot Bitcoin ETF as a short-term catalyst.

Meanwhile, the asset manager also pointed to the recent widening of contango in the futures market, terming it as a rare occurrence since 2018, indicating a “very bullish sentiment,” with premiums reaching well into double digits.

The consistent positive funding rates, the highest levels of trading volume and leverage since April, and a long/short ratio of 0.97 have all contributed to the optimistic outlook and price movement of Ethereum.

Additionally, the gradual rise in gas prices adds pressure to the leading altcoin’s deflationary characteristics, impacting the overall supply of Ethereum. As a result, the upward movement in price is more pronounced due to the increased impact of buying volume.