A new Fidelity research shows that Bitcoin has no correlation with other asset classes
Bitcoin has behaved differently from any other investment asset available in the market in the last five years, acting on average almost entirely independently. The words are from financial services giant Fidelity.
Fidelity Digital Assets, Fidelity’s crypto-currency arm, said in a report released on Tuesday (13) that Bitcoin bears almost no relation to the returns produced by other asset classes, including gold and US stocks.
Furthermore, his report, the second part of the company’s Bitcoin Investment Thesis, suggests that investors maintain 5% of their investments in Bitcoin as exposure to alternative investments.
This represents another sign that institutions are warming up to digital gold and observing its ability to provide unrelated returns despite external conditions.
The Fidelity report was conducted interviewing investors and crypto industry experts from companies such as ARK Invest, CoinShares and Fidelity Investments. In it, the company expresses its opinion for „the role of Bitcoin as an alternative investment“.
Alternative investments are considered distinct from positions in public stocks or fixed income instruments, such as securities. These types of assets provide exposure to unique risk that is expected to see price changes regardless of other asset classes. Alternative investments increased from 6% of global investment markets in 2003 to 12% in 2018, and are expected to grow to represent up to 25% of global markets by 2025, according to Fidelity.
Alternative assets are attractive to investors with a portfolio that contains a diverse mix of stocks, bonds and other equity because they are more likely to retain more value when more traditional investments perform less well. A variety of assets helps smooth returns over time, at the cost of losing potentially higher returns if one or a few specific assets significantly outperform the market.
Bitcoin correlations over time.
Fidelity research found that Bitcoin as an investment vehicle had a correlation of only 0.11 with other assets in an average of 30 days between January 2015 and September 2020. Correlation measurements range from 1 to -1, based on whether the price of an asset moves in the same measurement with a fully correlated asset, or exactly the opposite for a fully uncorrelated asset.
A score of 0.11 means that Bitcoin prices move neither up nor down compared to 30 days with any asset class, including those such as gold or the broader U.S. stock market, which are often compared alongside BTC. Fidelity has found that, over time, Bitcoin prices change without worrying about what other assets are doing, even if the movements sometimes correlate in the short term.
Based on its research, Fidelity recommends maintaining 5% of the value of a portfolio in Bitcoin as a means of obtaining higher returns over time, regardless of market conditions.
„Consider a portfolio with a 5% bitcoin allocation target,“ the company said. If the bitcoin allocation goes above this mark, the company recommends selling part of this Bitcoin to rebalance its portfolio. If it falls below this mark, investors should buy, he said. „One advantage of rebalancing is that it forces investors to have discipline to buy down and sell up,“ said Fidelity.
Along with the August launch of the Fidelity Bitcoin Index Fund, Fidelity continues to strongly defend institutional investors to enter the Bitcoin.
„Bitcoin is a unique investment asset with convincing differences from traditional asset classes, as well as conventional alternative investments that can make it a beneficial addition to a portfolio,“ concluded the company’s report.