“In times of risk in the markets, bitcoin tends to suffer more than stocks”

The extraordinary profitability of bitcoin, of around 90% in 2021 or ethereum, of more than 400%, gives investors long teeth. It is not uncommon to hear ‘traders’ around the world lament for not having entered a market earlier that has both risk and reward and in which many contemplate taking positions sooner rather than later.

However, there are much myth around the stratospheric profitability of cryptocurrencies “When you adjust for risk,” bitcoin’s performance gap “narrows considerably,” says Carsten Menke, director of Next Generation Research at Julius Baer.

The expert acknowledges that digital assets “have so far delivered astonishing returns, which often outperform traditional asset classes, even on a risk-adjusted basis. “” However, when risk is taken into account, the gap to traditional assets is reduced and the advantage is much smaller. ” , he insists. And adds that “although the value of cryptocurrencies has increased considerably in recent yearsWe believe that the potentially disruptive power of decentralized finance could offer much more potential in the long term. “

Due to its incipient nature, Menke assures that “the cryptocurrencies remain a very volatile asset class“.” Temporary drops of 50% or more are the norm rather than the exception, and in times of risk in financial markets, cryptocurrencies tend to suffer more than stocks, “argues Julius Baer analyst. Also,” less established and smaller tokens tend to have a higher risk than established and larger ones. “

Based on their joint movement with equities, measured by their correlation, “the cryptocurrencies provide some diversification benefits to a portfolioBut not to the extent that many may believe, “Menke continues.” Correlations tend to skyrocket in times of risk, and cryptocurrencies tend to suffer more than equities, “he explains.” Therefore, they lag behind. the typical havens like the US dollar, Treasuries or gold in terms of their diversification benefits. “

In this context, the Swiss entity sees cryptocurrencies “primarily as a profitability enhancer in a portfolio. ”Menke details that historically, this valuation is supported by the fact that the addition of cryptocurrencies to a portfolio beyond a small weight of less than 5% led to an increase in realized returns, as well as volatility realized, which resulted in a lower overall risk-adjusted return.

In other words, “also for cryptocurrencies, risks and returns are two sides of the same coin“, sentence. Taking this into account,” we believe that cryptocurrencies are only suitable for investors who have the ability and willingness to take the related risks. “In summary, from Julius Baer they advise cryptocurrencies to investors who love risk and they advise against those averse to it.

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“In times of risk in the markets, bitcoin tends to suffer more than stocks”

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