Coinbase CEO Brian Armstrong stated during last week’s fourth-quarter earnings conference call that every institution is now starting to hold cryptocurrencies, which will become an essential part of every diversified investment portfolio.
In a recent interview, Zann Kwan, the Chief Investment Officer and Partner at Revo Digital Family Office, mentioned that Asian family offices are planning to increase their investment allocation to cryptocurrencies. Even investors who were previously cautious are now actively exploring how to integrate cryptocurrencies into their investment portfolios in order to achieve higher returns.
Brian Armstrong, the CEO of Coinbase, the largest exchange in the United States, also expressed during the fourth-quarter earnings conference call last week that it is an inevitable trend to include cryptocurrency assets in investment portfolios. He emphasized that the adoption of cryptocurrencies by the financial system is a great development and that Coinbase is the most trusted partner in this field. He pointed out that Coinbase is the custodian for eight out of eleven Bitcoin spot ETFs, accounting for 90% of the Bitcoin assets in Bitcoin spot ETFs. Armstrong also mentioned other possibilities besides ETFs for accessing cryptocurrencies.
Armstrong concluded by saying that they hope cryptocurrencies will provide more and more momentum for the global GDP, and they must seize every possible opportunity to achieve this goal. From his perspective, ETFs are extremely beneficial to their business.
In a joint publication of the 2024 Q1 Crypto Market Guide by Coinbase and Glassnode last month, the role of adding cryptocurrencies to traditional investment portfolios was also studied. The surprising conclusion showed that adding cryptocurrencies to the portfolio can enhance returns in terms of absolute returns and risk-adjusted returns.
They made small allocations to the Coinbase Core Index (COINCORE) in traditional equity and bond portfolios and adjusted the proportions accordingly. The results can be seen from the table below. When no cryptocurrencies were allocated (leftmost column), the absolute return rate was 3.78%. However, after allocating 1% to 5% of COINCORE, the absolute return rate gradually increased to 6.53%.
Of course, it cannot be denied that the risk also increased. The volatility can be observed to gradually increase from left to right. Therefore, it is also necessary to observe the “risk-adjusted return,” which measures how much return an investor can enjoy per unit of risk taken. Coinbase listed three indicators of this kind: Sharpe, Sortino, and Calmar (also known as the drawdown ratio). The difference between them lies in the different ways of measuring risk, including total risk, risk of negative returns, and maximum drawdown (the bottom row of the table). However, regardless of the method, the results showed an increasing trend in risk-adjusted returns after allocating 1% to 5% of cryptocurrency assets.
For readers interested in incorporating cryptocurrencies into their investment portfolios, they can refer to Coinbase’s research report from May last year.
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