New York investment firm praises Bitcoin (BTC) as an alternative to gold in investors’ portfolios in the long term.
Bitcoin’s lower volatility makes a case for the top crypto as a “store of value and medium of exchange.”
One of the top New York investment firms, AllianceBernstein, is finally switching its calls on Bitcoin, stating investors need to own about 1% to 10% of the crypto in their portfolios. The multi-billion investment firm had previously cautioned investors from the top crypto due to BTC’s volatility and regulatory risks.
In the latest research note to the company’s investors, first mentioned on Coindesk, Inigo Fraser Jenkins, co-head of the portfolio strategy team at Bernstein Research, the research arm of AllianceBernstein, stated the current global changes in policies, investment environment, and diversification benefits is key to their change in sentiments on Bitcoin.
Previously in 2018, shortly after BTC hit an all-time high, the investment firm dismissed the coin as an investment asset, advising their clients against adding the coin to their portfolios. With BTC retesting all-time highs again on November 30, the asset manager “admits” that BTC has a role in asset allocation and diversification.
The current global pandemic has seen BTC register a less volatile price movement since a shocking dip below $3,500 back in March, the note stated. Jenkins states that the lower volatility in BTC during this period makes the asset “more desirable” for the long term investors – showing properties similar to gold as a store of value.
According to the note, during the pandemic, Bitcoin has witnessed a higher correlation with other assets, showing its promise as an investment asset. Bitcoin’s correlation with gold and the S&P 500 index reached an all-time high as BTC performance resurrected after the March crash. Jenkins said,
“From a narrow empirical point of view, the downward shift in [volatility] of bitcoin makes it more desirable, but its increased correlation points the other way.”
Notwithstanding, the research also states BTC protects the investors from inflation in a similar manner to gold. To this effect, BernsteinResearch compared the two assets. Despite BTC not “exactly moving in a way that would counteract inflation in a given fiat currency, it behaves as stores of value similar to gold.
The note advises investors to place about 1% to 10% of their portfolio in BTC following the crypto’s monthly return performance. While 1% could seem low compared to other assets, BTC is “empirically significant.” Jenkins wrote,
“The resulting allocation to bitcoin is low, but then within this simple optimization framework the allocation to some other asset classes is zero, so in that context, bitcoin seems to empirically be potentially significant.”
Jenkins’ research, however, does not give Bitcoin a free pass as an investment asset. The note lists inherent risks the cryptocurrency can face, such as government regulation, illicit use, and environmental concerns arising from mining as the currency’s adoption grows.