Key Takeaways
- Looking at average returns over the past ten years, we can conclude that adding BTC to an investment portfolio consisting of the S&P 500, Core US Aggregate Bond, Gold, and Real Estate Investment Trust (REIT) helped increase yield by 0.4% to 2%.
- Adding BTC and ETH to such a portfolio shows the same trend as including only BTC, but average returns further increase by up to 2.5%. In negative scenarios, performance drops by 0.9% to 7.1%.
- Adding 1% to 5% of BTC and ETH to the portfolio above does not show a significant rise in overall risk:
- With BTC accounting for 1% to 5% of the portfolio, the overall volatility reduces by around 1.23%.
- With BTC and ETH accounting for 1% to 5% of the portfolio, the overall volatility increases by around 4.55%.
- The Modern Portfolio Theory (MPT) is adopted to compile portfolios by adding BTC, or BTC and ETH. We explore the efficient frontiers based on the selected assets to discover optimal portfolios:
- Without adding crypto assets, a portfolio consisting of the S&P 500, Core US Aggregate Bond, Gold, and REIT can achieve a maximum Sharpe Ratio of 0.7050, with the return, risk (volatility), and risk-free interest at 9.61%, 0.1161, and 1.44%, respectively.
- One optimal portfolio is found when adding BTC as the only crypto asset with limited weight (less than 5%). The corresponding return and risk are 10.67% and 0.1106, respectively, with a Sharpe Ratio of 0.8345.
- One optimal portfolio is identified when adding both BTC and ETH with limited weights (less than 5%). The corresponding return and risk are 11.43% and 0.1047, respectively, with a Sharpe Ratio of 0.9539.
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Authors
Crypto.com Research and Insights team
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