Why Financial Advisers Should Care About Bitcoin
At this point and time, anyone in the financial world should care about Bitcoin!
The traditional 60/40 portfolio (balancing equities and fixed-income assets) hasn’t been battle-tested for these unprecedented times. Central bank balance sheets are soaring, and interest rates are at record lows. This means investors are reaching far and wide for yield – oftentimes without a reliable hedge.
Advisers should consider talking to their clients about diversification, particularly in bitcoin. The cryptocurrency offers high returns that are uncorrelated with traditional asset classes. This diversification benefit means that bitcoin could be a key hedge against downside risk.
Companies are also using bitcoin to hedge risk. In September, MicroStrategy announced that it will purchase $175 million worth of bitcoin. The Nasdaq-traded company plans to invest up to $250 million over the next 12 months in a mix of assets such as stocks, bonds and bitcoin.
nvestors could take a page out of MicroStrategy’s playbook. Even a small allocation to bitcoin could help offset the impact of rising inflation, which will erode the purchasing power of cash – currently yielding close to nothing.