The authors show that bitcoins have a volatility that is greater than large cap stocks by a factor of 20 but still has an information ratio of over 1. This is before the run-up of the last few weeks. Surprisingly, as seen in the table below, if you want diversification through negative correlation, stick with long bonds.
The authors show that holding bitcoins (BTC) would have improved the performance of 60/40 stock/bond even if the allocation was only 2%, but that does not mean it should be added to a portfolio.
- What is the fundamental economic thesis for any investment?
- Why should it make money?
- Why should it have a different return stream than other assets and strategies?
- Is there a theoretical reason for its diversification properties?