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A diversified portfolio with gold and Bitcoin makes sense as Bitcoin’s trading volume rises
Gold’s stability offsets Bitcoin’s volatility
This way, investors may participate in Bitcoin’s upside potential without compromising on risk parameters
Portfolio management deals with managing risk. All risk cannot be avoided, and a risk-averse investor would not want to take no risk.
Instead, a risk-averse investor would like higher risk-adjusted returns. Naturally, the higher the potential return, the higher the risk.
Investors build portfolios of different assets to find the best possible risk-adjusted returns. Ideally, the assets have a negative correlation, thus bringing diversification benefits to the investor.
But it also makes sense to build a portfolio with correlated assets. While the portfolio is riskier, some other asset properties may appeal to investors willing to take a bigger risk.
As Bitcoin’s average daily trading volume rises, such a diversified portfolio may contain gold and Bitcoin.
Why to add gold and Bitcoin to a portfolio?
Diversified portfolios spread the risk across uncorrelated assets. A portfolio manager’s challenge is finding that diversification level beyond which diversification brings no benefits anymore.
Traditionally, gold’s role in a portfolio is to bring stability. By adding Bitcoin to a portfolio, one may participate in the cryptocurrency’s upside potential and, at the same time, mitigate the risk associated with Bitcoin’s volatility by combining it with gold.
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