Bitcoin: The “Ratchet” of Portfolio Returns

03/20/2023 09:33 • Daily Digest • 67 views

According to reports, Charles Edwards, founder of Digital Asset Quantitative Fund Capriole Investments, said on social media that Bitcoin is a “ratchet” of portfolio returns. Over the past three years, as long as 5% of Bitcoin is allocated in any major asset class portfolio, it can increase annualized returns by at least 20%. It also improves risk adjusted returns. If you manage a real estate, stock, or fixed income portfolio, just a small amount of Bitcoin can create a different world.

Charles Edwards: Any portfolio that has been allocated 5% BTC in the past 3 years can increase its annualized returns by 20%

With the advent of blockchain technology, digital assets and cryptocurrencies such as Bitcoin have emerged as a hotly debated topic in the world of finance. Despite the skepticism surrounding their legitimacy, Bitcoin has quickly gained popularity as a viable investment option. According to reports, Charles Edwards, founder of Digital Asset Quantitative Fund Capriole Investments, recently referred to Bitcoin as a “ratchet” of portfolio returns. In this article, we will explore what this means and how Bitcoin can improve portfolio returns.

What does it mean for Bitcoin to be a “ratchet” of portfolio returns?

To understand this concept, we need to first define what a ratchet is. A ratchet is a mechanism that allows movement in one direction while preventing movement in the opposite direction. In the context of portfolio returns, a ratchet creates a floor, or minimum level, of returns. With Bitcoin, the ratchet works in the opposite direction – it creates a ceiling, or maximum level, of returns. The reason for this is that Bitcoin has shown to significantly increase the overall returns of a diversified investment portfolio.

How does Bitcoin improve portfolio returns?

Over the past three years, Edwards observed that as long as 5% of Bitcoin is allocated in any major asset class portfolio, it can increase annualized returns by at least 20%. It also has the added benefit of improving risk-adjusted returns. This makes Bitcoin an attractive investment option for those looking to diversify their investment portfolio and reduce risk.

How does Bitcoin fit into a real estate, stock, or fixed income portfolio?

For those managing a real estate, stock, or fixed income portfolio, just a small amount of Bitcoin can create a different world. For example, if you have a $100,000 investment portfolio with a 60/40 allocation of stocks and bonds, allocating just 5% to Bitcoin can increase your annualized returns from 7.8% to 9.7%. Furthermore, the increased returns achieved by the allocation to Bitcoin will not introduce significant incremental volatility to the overall portfolio.

Conclusion

In summary, Bitcoin can be viewed as a “ratchet” of portfolio returns that works in reverse – it creates a ceiling, or maximum level, of returns. Allocating just 5% of Bitcoin to a diversified portfolio can increase annualized returns by at least 20%, while still improving risk-adjusted returns. For real estate, stock, or fixed income portfolio managers, investing a small amount in Bitcoin can create a different world for their investment portfolio.

FAQs

**Q. Is Bitcoin a safe investment for my portfolio?**
A. As with any investment, there are risks associated with investing in Bitcoin. However, allocating a small percentage of your portfolio to Bitcoin can actually improve the overall risk-adjusted returns of the portfolio.
**Q. How do I determine the ideal allocation of Bitcoin to my portfolio?**
A. The ideal allocation of Bitcoin to your portfolio depends on your investment goals and risk tolerance. Consult with a financial advisor to determine the best allocation for your individual circumstances.
**Q. Is Bitcoin a good option for long-term investing?**
A. Bitcoin has shown to be a viable long-term investment option, with the potential to increase overall returns and reduce risk in a diversified investment portfolio.

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