Yale Economics Professors advocate for Bitcoin portfolio allocation 🚨 This article is 5 years old...
Yale Economics Professors advocate for Bitcoin portfolio allocation
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Updated: Dec. 15, 2019 at 3:37 am UTC
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Analysts have long pointed to Bitcoin’s lack of mainstream credibility as one primary factor that has been stunting its growth, but this appears to be shifting, as prominent economics professors at a major Ivy League university are now advocating for all investors to allocate Bitcoin and a handful of major altcoins to their investment portfolios.
In order to support this notion, the professors point to factors including the lack of correlation that cryptocurrencies have with mainstream markets, and the potential for massive unprecedented returns.
Yale Economists: Bitcoin should occupy roughly 6% of investors’ portfolios
Bitcoin and most major cryptocurrencies have seen significant upward momentum in the time since their respective inceptions, but all the volatility seen by BTC has not been positive, with its market cycles being comprised of major rallies that are followed by large retraces.
In spite of these cycles, BTC’s price and the aggregated crypto market capitalization continues to rise over a macro time frame, and economists are now advocating that investors allocate some crypto to their portfolios in anticipation of the macro uptrend continuing.
In a recent paper from Yale economics professors Yukun Liu and Aleh Tsyvinski titled “Risks and Returns of Cryptocurrency,” the pair notes that the distinct price action experienced by the nascent asset class is entirely unique from other markets, making it a valuable addition to a diverse portfolio.
“We establish that the risk-return tradeoff of cryptocurrencies (Bitcoin, Ripple, and Ethereum) is distinct from those of stocks, currencies, and precious metals. Cryptocurrencies have no exposure to most common stock market and macroeconomic factors,” they note, later specifying that BTC should “occupy 6% of every portfolio.”
Crypto markets poised to bring investors further returns
The economists also believe that cryptocurrencies can do more for investor’s portfolios than just hedging against volatility in more traditional markets, as they note that the future value forecast for Bitcoin and other digital assets could be very strong. They explain:
“Specifically, we determine that there is a strong time-series momentum effect and that proxies for investor attention strongly forecast cryptocurrency returns… The returns of cryptocurrency can be predicted by two factors specific to its markets – momentum and investors attention.”
While keeping this in mind, it grows clear that the markets could see a significant further upside if they are able to maintain their momentum and continue captivating the attention of investors.
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Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.