The Future of Market Volatility and Bitcoin’s Role in Asset Allocation
Jamie Coutts, a crypto market analyst at Bloomberg Intelligence, recently shared his thoughts on the future of market volatility and the evolving role of Bitcoin in global asset allocation. According to Coutts, there will likely be a significant increase in volatility across all markets due to current trends in yields, the U.S. dollar, and global M2 money supply.
Changing Volatility Profiles
Coutts highlighted that there has been a noticeable change in the volatility profiles of global assets compared to Bitcoin in recent years. Since 2020, hard assets like Bitcoin and Gold have seen a decline in their volatility profiles. On the other hand, global fixed income assets have experienced a 53% increase in volatility, while global equities have increased by 33%.
Trending Volatility of Bitcoin
When excluding Bitcoin’s hyper-volatile early years (2011-2014), Coutts noted that the cryptocurrency’s volatility has been on a slight downward trend since 2017. This is particularly interesting considering the macroeconomic factors at play.
Macroeconomic Factors and Bitcoin
Coutts expressed concern about the impact of rising U.S. dollar and 10-year Treasury Yields, along with a declining global M2 money supply, on Bitcoin and other risk assets. He emphasized their correlation with Bitcoin’s performance.
Bitcoin as a Risk Diversifier
Despite the short-term outlook, Coutts argued that what matters from an asset allocation standpoint is whether Bitcoin can serve as a risk diversifier and improve risk-adjusted returns. He pointed out that Bitcoin’s risk-adjusted returns have shown significant improvement during previous bear markets.
The Challenge of Bitcoin’s Short History
Coutts acknowledged that Bitcoin’s relatively short history makes it difficult to draw long-term conclusions. However, he stated that holding Bitcoin through multiple cycles has proven to be a winning strategy.
Future Asset Allocation
Coutts suggested that in the coming years, asset allocators may shift towards better hedges against monetary debasement, with Bitcoin being an obvious choice for this role. He argued that bonds are not ideal for outpacing monetary debasement, especially when considering various money aggregates like the U.S. M2 money supply.
Hot Take: Bitcoin’s Role in a Volatile Market
As market volatility continues to increase, the role of Bitcoin in asset allocation becomes more significant. Despite its short history, Bitcoin has shown potential as a risk diversifier and has improved risk-adjusted returns during bear markets. The changing volatility profiles of global assets compared to Bitcoin highlight its unique position. While macroeconomic factors pose challenges, Bitcoin may serve as a hedge against monetary debasement in the future. As asset allocators consider better options for preserving value, Bitcoin stands out as an obvious choice.
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