Chief Economist of CBEX: Bitcoin lacks correlation with mainstream assets and can be included in investment portfolios
According to Cointelegraph reported on February 12, mainstream financial entities have also started to consider Bitcoin as an unrelated asset. As early as a year ago, Anthony Pompliano, co-founder of Morgan Creek Digital, has started to promote this concept.
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On February 11, Bluford Putnam, chief economist of the Chicago Mercantile Exchange (CME), spoke in a video:
If bitcoin is unlikely to be related to economic factors or traditional stock and fixed income securities, then it can be used as a tool for diversifying its portfolio.
Bitcoin price is out of sync with traditional markets
Because Bitcoin is a new type of asset without borders and decentralization, it will not follow the volatility of stocks and bonds in the traditional market. Bitcoin has repeatedly shown evidence of a lack of relevance to traditional assets, including cryptocurrency expert Anthony Pompliano, who has been promoting the concept for years.
Pompliano said in a previous interview with Cointelegraph:
One of the most important characteristics of Bitcoin is that when it comes to investing in global hedges, it is an unrelated asset, that is, when stocks rise or fall, Bitcoin has no correlation with them.
Traditional markets begin to recognize claims that Bitcoin is not related to traditional market assets
Over the years, due to the dramatic fluctuations in the price of Bitcoin, many people have not considered it a viable and stable investment option.
Despite the bitcoin price volatility, Putnam said that Bitcoin's lack of correlation with mainstream assets may make it a value addition to the portfolio.
Bitcoin price is highly volatile. If it is not correlated with other mainstream assets, then investing in only a small part (such as a 2% portfolio) may reduce systemic investment risk.
Putnam refers to a typical hedge-type investment portfolio, which usually holds 60% of stocks and 40% of fixed income assets such as bonds. Combined with historical data, the proportion of this portfolio has proven to be very robust in most economic situations.
Putman's investment experiment in 2019 shows that adding 2% of Bitcoin to the portfolio will reduce the overall investment risk slightly:
The potential diversification of such investment portfolios will also be reflected in how the price of Bitcoin will change if geopolitical events disrupt the stability of traditional markets and create uncertainty.
In August 2019, Pompliano had predicted that Bitcoin would eventually be included in the portfolio of all institutions.
The Chicago Mercantile Exchange declined to detail Putman's comments in this article. Cointelegraph asked Pompliano for more details, but as of press time, no response was received.