CoinShares, a prominent asset management firm, has identified Bitcoin as a key strategic asset for managing exposure in investment portfolios.
The latest recommendation comes amidst a notable surge in inflows into digital asset investment products, which have reached a staggering $1.7 billion over the last nine weeks, marking the largest increase since late 2021.
Bitcoin (BTC), the leading cryptocurrency, has been at the forefront of this influx, attracting over $1 billion in the past month alone, culminating in a total of $1.6 billion year-to-date. Ethereum (ETH) also witnessed a substantial inflow of $126 million, indicating a notable shift in investor sentiment.
Despite Bitcoin’s reputation for delivering substantial returns, it is often viewed as a high-risk addition to traditional stock and bond portfolios due to its volatility.
However, CoinShares’ latest report presents a different perspective, suggesting that even minimal allocations of Bitcoin can have a disproportionately positive effect on the risk-adjusted returns and diversification of a balanced investment portfolio.
The research further highlights Bitcoin’s unique position as an alternative investment, primarily due to its low correlation with traditional assets. This characteristic enables it to act as a hedge against economic cycles.
CoinShares also notes that regular rebalancing of Bitcoin allocations can effectively reduce volatility and enhance overall portfolio performance.
The value of Bitcoin recently experienced a decline of approximately 4% following a $4.3 billion settlement between Binance and the US Justice Department. However, it swiftly recovered, climbing to a value of $44,000.
CoinShares attributes this resilience to several factors, including the industry’s elimination of bad actors, signals from the Federal Reserve indicating a potential halt in interest rate hikes, and the anticipated approval of a spot Bitcoin ETF.
In addition to Bitcoin’s performance, the asset manager has observed a rare widening of contango in the futures market, a phenomenon not seen since 2018. This situation is interpreted as a strong, bullish indicator, with futures premiums reaching significant levels.
Ethereum, on the other hand, has been buoyed by consistent positive funding rates, high trading volumes and leverage, and a balanced long/short ratio of 0.97. The gradual increase in gas prices is also exerting upward pressure on Ethereum’s price, accentuating its deflationary nature and amplifying the impact of buying volume.