Welcome back to Distributed Ledger. This is Frances Yue, crypto and markets reporter at MarketWatch.
ETFs have been trading for a few weeks and some investors have been wondering whether they should add bitcoin into their portfolio.
I caught up with Ryan Rasmussen, senior crypto research analyst at crypto asset manager Bitwise Asset Management, whose study said a small addition of bitcoin could significantly boost a traditional portfolio’s return.
Find me on X at @FrancesYue_ to share any thoughts on crypto or the newsletter.
Adding bitcoin into your portfolio?
According to a recent study by Bitwise, a traditional portfolio consisting of 60% equities, or the Vanguard Total World Stock ETF
and 40% bonds, represented by the Vanguard Total Bond Market ETF
would have seen a return of 77.6% from 2014 to 2023, with an annualized volatility of 8.6% and maximum drawdown of 22.1%.
However, if a 5% allocation in bitcoin is added, it could have boosted the portfolio’s return to about 169% for the same period, more than doubling the total return of the portfolio, according to Bitwise’s report. The additon would have only increased the portfolio’s volatility, a key measure of risk, by 1.3 percentage points, according to the report.
“It highlights how a small allocation to bitcoin can have a meaningful impact on the risk-adjusted returns of a traditional portfolio.” Rasmussen told Distributed Ledger.
To be sure, bitcoin, whose value was at zero when it was launched in 2009, saw a spectacular return from 2014 to 2023, while past performance does not predict future results. Bitcoin currently trades at around $43,600, about 37% below its record high reached in 2021.
Bitwise’s study also showed that the trading volume in decentralized exchanges has caught up with their centralized peers in 2023. Last year, decentralized platform Uniswap saw $464.8 billion in trading volume, almost the same level as that of Coinbase
as the collapse of several crypto companies shook investors’ confidence in centralized exchanges, Rasmussen noted.
However, Coinbase could be back to lead the competition in 2024, according to Rasmussen. “Generally speaking, a bull market brings in new users, and new users tend to interact with centralized exchanges,” he wrote.
Increasing demand for crypto custody
The debut of bitcoin ETFs in the U.S. has driven up demand for digital assets custody, said Gavin Michael, chief executive officer at Bakkt, a crypto custody and trading company.
Michael said he has seen a rise in custody demand of digital assets since the bitcoin ETFs debuted, as they drove up institutional participation broadly, noted Michael.
Different companies and institutions need crypto custody in different use cases, Michael said in a phone interview.
For example, crypto miners have the need to store the rewards they get, while some non-custodial crypto exchanges are in demand for custody services for settlement purposes, Michael said. Some family offices and other financial institutions require custody services after investing in digital assets, Michael said.
FTX customers to be repaid
Customers and creditors of bankrupt crypto exchange FTX with approved claims might expect full repayment of their money, according to several media reports citing lawyers overseeing the exchange.
However, the bankrupty team couldn’t find a buyer to restart the exchange, according to the lawyers.
Crypto in a snap
Bitcoin rose 6.9% in the past seven days and ether gained 3.9% during the same period, according to CoinDesk data.
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