How much should you allocate to buy bitcoins in your portfolio?

How much should I allocate to Bitcoin in my portfolio ? The answer to this question varies from person to person.

When people use Bitcoin as a saving tool for the first time, or when people with more traditional investment concepts regard Bitcoin as a potential investment method, they all face a question: how much should I invest in this new, What about promising fields?

At the beginning of this summer, Paul Tudor Jones, a well-known hedge fund manager, described his ideal investment with “Bitcoin as a tool for diversifying investment portfolios”-“The only thing I can be sure of is , I want 5% gold, 5% bitcoin, 5% cash, and 5% futures.”

In asset allocation recommendations, 1%-5% is a very common allocation ratio, because 5% is a simple number (very few people use a complex number like 7.648% to allocate their assets). Asset allocations that account for only single digits are very common, even some high-profile university endowments will be allocated in this way.

Of course, due to the rapid development of this field, if you want to achieve an ideal ratio of various assets, you also need to think clearly in advance, when you want to rebalance your investment portfolio, and how much money you plan to invest in this Kind of balance. For example, if you continue to exchange Bitcoin for other assets, when the price of Bitcoin rises, you will miss a lot of potential upside, and you may lose a lot of taxes and transaction fees. If you just want to get a little extra return on investment in the traditional financial sector, that is usually no problem, but if the price of Bitcoin rises ten times again, it will be a disaster. In this case, the meager extra income you get looks like buying a car or yacht with Bitcoin in 2013: the cost is very high.

The economists Aleh Tsyvinski and Liu Yukun of Yale University and the University of Rochester concluded in a paper three years ago: Bitcoin’s risk exposure is between 1% and 6%. Between is the optimal scale, and the specific ratio depends on your forecasted future annual excess return rate (30%, 50%, 100% or 200%). So far, these data have been outdated, because there are already large-scale retail and institutional users in the encryption field, which has increased the relevance of the encryption market to the overall market. According to my speculation, the rate of return will inevitably fall. In the view of Liu Yukun and Zivinsky, these factors will reduce the proportion of Bitcoin in the best investment portfolio. William Baldwin, a writer for Forbes magazine, agrees with this view. He wrote in the article: “Bitcoin has a short history. Looking back at the century-long history of stocks and bonds, you can predict yourself How much return will be obtained from the investment and how volatile the asset is; but it is difficult for you to infer any conclusions from the virtual encrypted assets in just over ten years.”

Bloomberg’s Joe Weisenthal has repeatedly pointed out that Bitcoin is highly correlated with other high-risk assets: “Bitcoin’s big selling point is its diversification advantage, but now, it’s almost just you. The standard risk assets are similar to cloud computing stocks or Tesla, or even gold.”

Amy Arnott of Morningstar, an international authoritative fund rating agency, believes that the relationship between Bitcoin and other assets is changing: “As mainstream investors increasingly accept Bitcoin, Bitcoin becomes a diversified one. The value of standardized investment vehicles is declining; therefore, there is no guarantee that increasing the proportion of Bitcoin will increase the portfolio’s risk-adjusted returns, especially to the same level as in the past.”

Now, the price of Bitcoin does not actually change completely in accordance with people’s expectations of inflation. This is just an influencing factor. Bitcoin price is actually more susceptible to the impact of real interest rates. In addition, regulatory crackdowns and Musk’s tweets Certain events will also affect the price of Bitcoin. This is the similarity between it and gold. As a financial asset, the main disadvantage of gold is that gold has to pay an opportunity cost in a high interest rate environment. If you think that this situation will not happen again, then hoard Satoshi (stacking sats, increase your Bitcoin holdings by buying, earning or mining, while reducing unnecessary expenses. Satoshi is the smallest unit of Bitcoin) It is an investment option that does not require an opportunity cost.

“Don’t put all your eggs in one basket” is a common investment advice, and there are many studies in the academic circles in the financial field. To do this, it is not only necessary to hold shares in several different companies. If all of these companies you buy stocks face the same risks, or are more or less doing the same business, and as central banks are printing money madly, all walks of life will gradually become the same business. The view of modern portfolio theory is that in your investment portfolio, each part of the assets should be able to compensate each other and hedge risks, so that no matter what the situation is, most of the savings can be intact. Therefore, it is best if there is no correlation between the various assets you buy, or there is a negative correlation.

For a long-term investor, managing their own funds or family funds and planning for the next few decades may not be so important. For the average person, the suggestion to put the cost of dollars in passive mutual funds evenly is: if you don’t use the money in the next 5, 10, or 20 years, then you don’t need to have a smoother portfolio trajectory. What you want is the return in the next few decades, preferably until retirement. Even if the major financial media put forward various opinions on asset price fluctuations, such long-term investors will not be affected too much. Bitcoin’s Sharpe Ratio (the ratio of its return to volatility) is generally better than most other assets:

How much should you allocate to buy bitcoins in your portfolio?

(Risk-adjusted returns are calculated using the Sharpe ratio during the 4-year HODL period) Source: Willy Woo

In other words, even without considering the little-known early days of Bitcoin, several years of Bitcoin holdings are enough to offset its short-term price risk.

So, what should we do?

It is important to remember that all these rules are universal, but they cannot be directly applied. You must analyze them according to your specific financial situation. To be fair, even a responsible asset adviser cannot publicly provide specific guidance in interviews that millions of people read because he does not know the financial status of those people. List all 2%, 5%, or 10% of your savings. This has nothing to do with the three key elements of your life:

  • Timing : When do you plan to use the money? At what age do you plan to retire? Do you plan to leave an indefinite asset to your heirs.
  • Risk tolerance : When the value of your investment assets fluctuates in the short or medium term, can you be calm? If you suffer from insomnia due to price fluctuations, you are overreacting. Some people are bored with the ups and downs of prices, and remain unchanged even in more than 50% retracements; while others are as timid as a frightened cat. You have to think clearly what kind of person you are.
  • Income security : Other sources of income are very important, such as “How much do you earn?” “How much do your spouse earn?” “What are your expenses?” The opponent is the whole world. I would not recommend ordinary people to invest in Bitcoin with their livelihood money. If you can’t even afford to eat after the money is lost, don’t put all the money in your credit card into Bitcoin.

These three standards vary from person to person. How each person understands Bitcoin and how the existing monetary and financial system operates. This set of cognitive systems is based on these three standards. Generally speaking, the deeper and deeper you are, the more you believe in the long-term price potential of Bitcoin, and the more you tend to let Bitcoin occupy a higher share of asset allocation.

The issue of asset allocation is far more complex than numbers. In extreme cases, you may not even consider Bitcoin as part of your investment portfolio, but as a free-floating asset that you have complete uninterrupted ownership of.


Source: Bitcoin Magazine


Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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