Bitcoin has had a huge year, and just days after bankers began pressuring African central banks to allocate their reserves to Bitcoin, a consulting firm and a pension fund have put the case forward for institutional investments in cryptocurrencies.
According to a research paper written by a hedge fund consultant and a pension fund investor have written that Bitcoin is largely unregulated which makes it very volatile and difficult to hold, but should be included in institutional investors portfolios.
Jim Kyung-Soo Liew, who is a finance professor at Johns Hopkins’Carey Business School, and chief executive officer of SoKat Consulting, and Levar Hewlett, who is a quantitative risk manage associate at the Maryland State Retirement and Pension System have put forward the case for investing in Bitcoin, and in their paper, which was posted just last month, they pointed to the cryptocurrency’s unique diversification benefits and attractive risk-return profile.
Bitcoin has a market value of $253billion, had a big year last year, which at one point saw the price per coin soar above $19,000, before plummeting back down to $14,000. Late last year, two US exchanges actually began trading Bitcoin futures as well, which offers regulated trading options to investors.
According to the two researchers, the historical returns of Bitcoin can and do compensate for the high degree of volatility. They found that it is uncorrelated to other investments, which they have described as ‘surprisingly interesting from a diversification perspective’.
They are not predicting that institutional investors should allocate 100 percent to Bitcoin, and have instead said that the optimal allocation was 1.3 percent over the period between August 2010 and October 2017. They said;
“For those CIOs who were lagging behind industry peers and need to add riskier, and thus more rewarding investments to their portfolio, cryptocurrencies are an investment worth considering.”
They have recommended that institutional investors educate their staff members about blockchain and electronic currencies, whilst they note the underlying risks. They finish by stating;
“We believe in the long run that the early institutional adopters will benefit.”
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