Crypto for overall portfolio diversification

Hi all,

I found this article most interesting, discussing whether crypto can play a role in reducing portfolio risk through diversification, and thought to share:

It’s based on this paper: The Role of Cryptocurrencies in Investor Portfolios by Megan Czasonis, Mark Kritzman, Baykan Pamir, David Turkington :: SSRN
Disclaimer: I did not read the original paper in full, so readers’ beware. Also it comes with a lot of caveats from the authors.

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I replaced TQQQ with BTC and ETH. The idea is to pump every month a little amount in cryptos - like I am doing it with the „VT“ construct.

Unfortunately, I am not very disciplinated in doing that with cryptos :slight_smile:

Only a small amount is needed (let‘s say 1-5% of your portfolio), to have a significant impact. If they are gone, you still have your „safe“ investment with VT. If they outperform… have a look on the screenshot.

How many more 10x do you expect? If you had invested 1% of your NW in BTC in 2019, would you rebalance now? Would you have rebalanced regularly (if so what would the chart look like)?

Very good question. I personally think, 100k or even 200k should be doable - but also USD 10 could be possible :slight_smile: At least I can pay with them in El Salvador, lol.

But it is not only because a x10 or x4 - it is also meant as a diversification tool.

Rebalancing… a good key word. I think, it is important to do that but then you probably won‘t have the full (positive) effect of its development. To rebalance it could be annoying because of the volatility.

But I think, cryptos could be an interesting asset class. Maybe you could decrease its part of your assets the older you get.

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