
Even a small amount of Bitcoin can make a difference to investment portfolios and even state pension fund managers are starting to take notice.
Jimmy Patronis, the chief financial officer of the State of Florida in the United States, asked the agency that manages the state’s retirement funds to consider investing in Bitcoin, as it has had a “material impact” on traditional investment portfolios’ returns, while also helping reduce their overall volatility.
Patronis, in a letter to the Florida State Board of Administration’s executive director, Chris Spencer, noted that Bitcoin (BTC) is often labeled “digital gold” and “could help diversify the state’s portfolio” while providing a “secure hedge against the volatility of other major asset classes.”
The state’s chief financial officer may be right, as Bitcoin has indeed been shown to be a potentially good portfolio diversifier, especially when applied to traditional portfolios allocating 60% of assets to stocks and 40% to bonds, known as the 60/40 portfolio.
Brian Rudick, head of research at market maker GSR, told Cointelegraph that according to a study the firm conducted, a modest 1% Bitcoin allocation “has historically had a material positive impact on a standard 60/40 portfolio’s Sharpe ratio.”
The Sharpe ratio is a metric used to analyze the risk-adjusted return of an investment, first developed by economist William F. Sharpe in 1966. Per Rudic, the more Bitcoin is added to the model portfolio beyond 1%, the better the Sharpe ratio of that portfolio, which indicates “that a fund is generating a sufficient amount of returns relative to the increase in risk.”
“Portfolios with a 1% allocation tended to generate an excess return of about 1% annually with much smaller increases in portfolio volatility and maximum drawdown.”
Steve Lubka, managing director of Swan Private Client Services at Bitcoin financial services firm Swan, seemingly echoed Rubick’s thoughts, telling Cointelegraph that a “small Bitcoin allocation could generally boost returns for the State of Florida by 2-3% in their pension.”
Lubka added that given…
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