Diversifying Your Portfolio: Is There Room for Crypto in Your Wealth Management Plan?
“I have yet to find somebody who has really done their homework on crypto assets that isn’t truly amazed by the potential for the asset class.” - Michael Sonnenshein
This is the 1st blog in our series Diversifying Your Portfolio with Blockchain Assets: A Guide for Investors.
Intro: Is the juice worth the squeeze?
Blockchain developments are now commonplace news headlines. Price action, champions, bad actors, breakthroughs, and setbacks are some of the trending topics in headlines we read about practically every day. Couple the constant news with the number of digital asset investments that are accessible via a myriad of crypto on-ramps, and we have a legitimized young asset class worth investigating.
Since the start of 2023, the cryptocurrency market cap has increased from approximately 795 Billion USD to 1.3 Trillion USD (as of late April 2023). This is an increase of over 60% in less than 6 months! With many digital assets showing minimal correlation to traditional asset classes, adding on-chain assets may be the best way to reduce the standard deviation of risk in a well-balanced portfolio.
Rebalancing your portfolio to make room for the addition of blockchain-based assets may come with a price, but given the historical data of the top crypto asset performers over the last decade, rebalancing costs have shown to be insignificant.
With this framework in mind, we will focus on separating Bitcoin (BTC) from all other crypto digital assets and analyze the metrics and characteristics of each. One may ask ‘Why single out BTC?’ The short answer is that it is the largest network of any blockchain-native-based asset and has the most recognition from retail and institutional investors as the first mover. Plus, it’s built on the most secure, decentralized blockchain on the market. With such a revolutionary and promising monetary asset class available to invest in, let’s examine whether the investment in crypto assets is truly worthwhile when it comes to your wealth management strategy.
Market Capitalization
Let’s compare blockchain tokens against classic asset measurements, such as the size or market capitalization, risk, and return. Beginning with the market cap of all combined cryptocurrencies versus bitcoin, we can see that BTC holds a dominant position within the cryptocurrency asset class.
Credit: Thenewscrypto.com
To broaden our view we can also examine the value of a global multi-asset market portfolio. The chart below shows the investable market capitalization for major asset classes.
With even a cursory review of global investable assets, it is apparent that many other asset classes have magnitudes higher market values compared to BTC (and thus cryptocurrencies in general). Considering that such a small piece of the pie of global assets is made up of cryptocurrencies, we can see there is much growth potential.
However, young asset classes can bring risk. In the next blog in this series, we will examine how much risk is suitable for cryptocurrency investments.
This is the first blog in our Diversifying Your Portfolio with Blockchain Assets series. To continue reading this series, head over to Diversifying Your Portfolio with Blockchain Assets: Is the Return Worth the Risk?
