Bitcoin Linked to Traditional Assets? Fidelity Investments: Bitcoin is a Unique, Alternative Asset, Should Make Up 5% of Investment Portfolio

Fidelity's subsidiary Fidelity Digital Assets, which focuses on cryptocurrency, stated in a report today that over the past five years, Bitcoin's performance has been different from other investment assets in the market, showing almost complete independence and little correlation with returns from other asset classes including gold and U.S. stocks.

Low Correlation

According to research by Fidelity, from January 2015 to September 2020, Bitcoin has shown an average 30-day correlation of only 0.11 with other assets as an investment tool. However, over time, Fidelity found that while there may be occasional short-term correlations with other assets, overall, the price of Bitcoin is hardly influenced by other investment assets.

Alternative Investment

On the other hand, Fidelity also explored the feasibility of Bitcoin as an alternative investment tool in the research. "Alternative investments" refer to investment methods outside of publicly traded platforms such as stocks, bonds, and futures, including Private Equity, Venture Capital, real estate, mining, and more. These types of assets provide unique risk exposures, and their price movements can be independent of other asset classes. According to Fidelity's report, alternative investments have grown from 6% of the global investment market in 2003 to 12% in 2018, and are expected to grow to 25% of the global market by 2025.

Including alternative assets in a portfolio is attractive to investors because when traditional assets perform poorly, alternative assets have the potential to retain higher value in a weak market environment. If the performance of specific assets outperforms the market significantly, a diversified portfolio can help achieve stable investment returns in the long term, but it may also risk missing out on potentially higher returns.

Bitcoin Should Occupy 5% of the Portfolio

In the report, Fidelity recommends that investors allocate 5% of their portfolio to holding Bitcoin as an investment tool to hedge market risks and achieve long-term stable investment returns. Fidelity wrote in the report:

"Consider allocating up to 5% of the target investment portfolio to Bitcoin. If Bitcoin’s performance exceeds other assets and your Bitcoin allocation exceeds 10%, you can implement a strict rebalancing strategy by selling a certain percentage of Bitcoin to bring the allocation back to 5%. The advantage of rebalancing is that it forces investors to adhere to the discipline of buying low and selling high."

The company concluded in the report:

"Bitcoin is a unique investable asset that has significant differences compared to traditional asset classes and traditional alternative investments, which may make it a beneficial complement to an investment portfolio."