Should I Have Bitcoin In My Portfolio—And How Do I Do That?
Many see bitcoin as a portfolio diversifier: adding a highly uncorrelated asset may give investors a positive risk/return aspect. Similar to gold, bitcoin can also be used as a hedge against inflation. Fidelity Digital Assets’ 2020 Institutional Investors Digital Asset Survey emphasizes the growing interest from investors in digital assets. The survey found that almost 80% of institutional investors found something appealing about the asset class, and six out of 10 believe digital assets have a place in a portfolio. (Blind survey conducted by Greenwich Associates of nearly 800 investors from November 2019 to early March 2020.)
Determining if there’s a role in the client’s portfolio for bitcoin depends on your investment thesis about its potential benefits. One important consideration is that bitcoin currently has a low correlation to other assets, and that correlation has continued to decrease in recent years. Bitcoin’s average 60-day correlation from January 2015 through December 2020 to the S&P 500 was 0.03, to gold was 0.05, and to the dollar index (DXY) was -0.06, according to data from Coin Metrics.
Most recently, many investors and analysts have considered bitcoin as a store of value, given recent monetary policy by central banks and the need to hedge against inflation while also providing the upside experienced with certain alternative and venture-stage investments. Advisors need to determine the role that the asset plays in a client’s portfolio, and then perform due diligence to determine how to access custody for digital assets for their clients.
Advisors should start all conversations with “why?” to understand where a client’s interest in bitcoin is coming from and what their goals are in exploring it as part of their portfolio. Are they reading about it in the news and just want to learn more? Is there a “fear of missing out” with a newer asset class? Whatever their reason, ensuring clients feel educated on the technology and digitally native assets is an important foundation for beginning to explore how it may help them achieve their financial goals.
Mike Durbin is the head of Fidelity Institutional, which offers clearing, custody, investment products, brokerage and trading services to a wide range of financial intermediary firms and institutions.
1Fidelity Institutional does not offer digital assets nor custody or execution for digital assets. Institutional custody and execution services for digital assets are offered by Fidelity Digital Asset Services LLC.