How Bitcoin Gains Advantage Despite Global Uncertainties

Investors face significant stock and bond returns risks. U.S. Treasuries have historically been a "safe haven," but from 2021 to 2023, they lost 10%, their poorest 3-year performance since the 1980s. The 60/40 diversified portfolio returned -16% in 2022, its poorest performance in 14 years.

In “Anti-Fragile,” Nassim Taleb examines how chaos gives objects distinctive traits. The immune system improves after a cold. Suits and appeals clarify laws. Hackers use holes to “battle harden” software.

Imagine adding a portfolio asset that benefits from global stress. This is improved by volatility and uncertainty?

Consider bitcoin. Bitcoin seems to like tension. The Chinese government outlawed bitcoin mining in 2021, resulting in the closure or relocation of ~50% of mining capacity. By seven months, capacity has returned and now over 2x what it was before the Chinese ban

The world's second-biggest crypto exchange filed bankruptcy in 15 months, and the largest was sanctioned by the U.S. Department of Justice. Bitcoin network transactions were unaffected, and trade volumes remain at record highs.

Bitcoin may become more anti-fragile as an asset. Bitcoin soared 20% when Silicon Valley Bank crashed on March 10, 2023, while markets fell over 1% the next day due to contagion worries. This bitcoin “safe haven” price reaction is novel, and time will tell if it lasts. Bitcoin has outperformed all other asset classes over the past 1, 3, 5, and 10 years, despite severe stressors.

Galaxy found that a 1% bitcoin allocation in a 55% S&P 500 / 35% Bloomberg U.S. Agg / 10% Bloomberg Commodity portfolio from August 2018 to August 2023 would have increased returns and risk-adjusted returns without affecting volatility or max drawdown:

Fidelity introduced bitcoin to its Canadian diversified ETF portfolios last week, with 1% for the Conservative ETF and 3% for the Growth ETF. US investors may easily acquire bitcoin ETFs like the low-cost Franklin Templeton EZBC or iShares IBIT.

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