Coinbase CEO Brian Armstrong stated during last week’s fourth-quarter earnings call that every institution is now beginning to hold cryptocurrencies, which will become an essential part of every diversified investment portfolio.
Summary:
Asian billionaires enter the cryptocurrency market! Family offices diversify their investment portfolios, expecting multiple returns.
Background:
Institutions aggressively increase their holdings! Bitcoin spot ETF “weekly net inflows of £2.5 billion”, BTC mining difficulty explodes by 8.24%.
Table of Contents:
Coinbase CEO: Cryptocurrencies will become an essential asset in diversified portfolios
Institutions will use cryptocurrencies in various ways
Research shows that allocating cryptocurrency assets can increase portfolio returns
In the past year, the total market value of the cryptocurrency market has grown significantly by nearly 80%, reaching $2.1 trillion. During this period, Bitcoin and Ethereum have seen gains of over 100% and 75% respectively. Combined with the successful launch of the US Bitcoin spot ETF, it continues to attract more attention from traditional investors.
Zann Kwan, the Chief Investment Officer and Partner of Revo Digital Family Office, recently stated that Asian family offices not only plan to increase their investment in cryptocurrencies, but also those investors who were previously hesitant 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 US exchange, also expressed during last week’s fourth-quarter earnings call that it is an inevitable trend to include cryptocurrency assets in investment portfolios. He stated:
Armstrong added that the formal adoption of cryptocurrencies by the financial system is a great development, and Coinbase is the most trusted partner in this field. He pointed out that Coinbase is one of the eight custodians among the 11 Bitcoin spot ETFs, with Bitcoin assets under its custody accounting for 90% of the Bitcoin spot ETF assets. He emphasized:
In addition to accessing cryptocurrencies through ETFs, Armstrong also expressed more possibilities:
Armstrong concluded, “We hope that cryptocurrencies will provide more and more driving force for the global GDP. We must seize every possible opportunity to achieve this goal.” From his perspective, ETFs are extremely beneficial to their business.
When Coinbase released the Q1 2024 Cryptocurrency Market Guide in collaboration with Glassnode last month, it also studied the role of allocating cryptocurrencies in traditional investment portfolios. The conclusion was surprising, showing that adding cryptocurrencies to portfolios can increase returns in absolute terms and risk-adjusted returns.
They allocated a small portion of the Coinbase Core Index (COINCORE) to traditional equity and bond portfolios and adjusted the proportion of stocks and bonds accordingly. The results can be seen in the table below. When no cryptocurrency assets 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 is undeniable that the risk also increased. It can be observed that the volatility increased gradually from left to right. Therefore, we must also observe the “risk-adjusted return,” which measures how much return an investor can obtain for a unit of risk. Coinbase listed three such indicators: Sharpe, Sortino, and Calmar (also known as the drawdown ratio). The difference between them is the different ways of measuring risk, which are total risk, risk of negative returns, and maximum drawdown (the bottom field in the table). However, regardless of the method, the results all show that after allocating 1% to 5% of cryptocurrency assets, there is a trend of increasing risk-adjusted returns.
Note: The equity and bond portfolio is composed of 60% MSCI ACWI (global stock index) and 40% US Agg (US aggregate bond index). COINCORE is a market-cap-weighted cryptocurrency index that is rebalanced quarterly and primarily allocated to eight constituent coins, including Bitcoin (65.3%) and Ethereum (28.7%).
For readers interested in including cryptocurrency assets in their investment portfolios, they can also refer to Coinbase’s research report from May last year.
Related Reports:
Coinbase’s earnings exceeded expectations, and its stock price surged by 14%! Blockchain concept stocks rose simultaneously.
Preparing for the cryptocurrency bull market! Bloomberg: Retail investors are cautiously returning, Coinbase’s current trading volume is 16% higher than the previous peak.
Bitcoin spot ETF daily trading volume of £2 billion “reaches a new high”, VanEck’s $HODL trading increases 14 times, what happened?