One of the holy grails in alternative investment strategies is finding uncorrelated assets. Having low statistical correlation to other assets is important for proper portfolio diversification and to help control for volatility. Based on a report published yesterday by Fidelity Digital Assets, Bitcoin had almost no correlation to other assets between January 2015 to September 2020. Needless to say, Fidelity has warmed up to the idea of Bitcoin out of necessity, as low-fee, millennial-friendly trading apps like Robinhood have accelerated their adoption of crypto. The report finds that global investor sentiment obviously had an impact on bitcoin’s price over the time period, as well as sudden demand shocks such as lockdowns and unemployment that immediately impact cash flow. Monetary policy decisions by the U.S. Federal Reserve and other central banks also had strong correlation to bitcoin's price—similar to nearly all equities, fixed income, commodities, and currencies. Director of Research Ria Bhutoria wrote that Bitcoin's current market capitalization “is a drop in the bucket compared with markets bitcoin could disrupt,” citing its $200 billion market cap compared to the $13.4 trillion market of alternative investments. She argued that crypto is fundamentally less exposed to the "economic headwinds" that other assets will likely face, and the opportunity cost of having 0% bitcoin allocation is high. Fidelity makes a strong bull case for more institutional investors to buy Bitcoin, as evidenced by their launch of the Fidelity Bitcoin Index Fund in August. Fidelity cites incremental benefits of Bitcoin as having higher liquidity (24/7 trading), higher accessibility, lower fees, and lower correlation. They also cite the growing angst for low-yield checking and savings accounts, and other fixed income assets amidst the pandemic. The report suggests (not recommends) a portfolio with 5% target allocation to bitcoin as being reasonable in today's market. It says crypto is still too small in terms of market size and trading volume to be considered it's own asset class, but says its still a "unique investable asset" and has "compelling differences" relative to traditional asset classes." While an allocation to bitcoin may lead to an increase in a portfolio’s volatility, they argue that the risk-adjusted return probably makes sense in the long-run.

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