In a recently released report titled Bitcoin Investment Thesis, Fidelity Digital Assets demonstrated how portfolio managers could increase their returns by allocating a portion of their holdings to Bitcoin (BTC). The report also speculated that in the near future, increased institutional interest could expand Bitcoin’s market capitalization by hundreds of billions of dollars.
Source: Fidelity Digital Assets.
To support its thesis, Fidelity simulated sample portfolios starting with a default allocation of 60/40 between equities and fixed income instruments. They then diversified these with Bitcoin at a rate of 1 to 3 percent. In every scenario considered by Fidelity, portfolios holding higher Bitcoin allocations outperformed their less diversified counterparts.
Assets that are negatively correlated or exhibit low correlations with the rest of the market provide additional benefits to portfolio managers. They allow for a reduction in volatility without having to sacrifice returns. Simulated portfolios that continued to hold Bitcoin benefited from the asset’s low correlation with traditional