Financial planning, retirement, and wealth management giant Fidelity Investments Inc. recently recommended Bitcoin as a portfolio percentage, which could be huge for markets if just a fraction of its clients acts upon it.
Fidelity Digital Assets, a branch of the firm focused on the crypto asset markets, released a report in October titled ‘Bitcoin Investment Thesis: Bitcoin’s Role As An Alternative Investment’. In it, the investment giant broke down Bitcoin’s position as an asset class and suggested that it has advantages over traditional financial investments.
We are excited to share the second report in our Bitcoin Investment Thesis series by @riabhutoria.
In this piece, we explore bitcoin’s role as an uncorrelated alternative investment that may provide portfolio optimization benefits.
— Fidelity Digital Assets (@DigitalAssets) October 13, 2020
Low Correlation, High Chance of Growth
Part of these advantages is the low correlation Bitcoin has to other assets held in a typical portfolio. In early 2020 Bitcoin was correlated to gold during times of geopolitical uncertainty, while during the pandemic months it has been correlated with stock markets. Overall though, this pattern changes and BTC has moved independently over the long term.
The report stated that Bitcoin is a young asset that, until recently, was untethered to traditional markets, adding that as it is integrated into institutional portfolios, it could become increasingly correlated with other assets.
The report considered a portfolio with a target allocation of 5% Bitcoin whereby investors could apply ‘a disciplined rebalancing strategy’ depending on its performance. Fidelity stated that just a small percentage of growth could rapidly turn Bitcoin into a multi-trillion dollar market.
“If Bitcoin were to capture 5% of the alternatives market as measured by CAIA (Chartered Alternative Investment Analysts), that would equate to an incremental $670 billion growth in its market size. If it were to capture 10%, that would expand its market size by $1.3 trillion.”
Bitcoin Community Reacts
BlockWorks Group’s Jason Yanowitz suggested that this was a huge deal for a company with $3.3 trillion assets under management, and could result in major capital inflows;
Fidelity just recommended that investors allocate 5% to Bitcoin.
Fidelity has $3.3 trillion AUM.
Investing 5% into Bitcoin would be an additional $165 billion of capital flooding into Bitcoin.
You have to be crazy to not own Bitcoin at this point.
— Yano (@JasonYanowitz) October 14, 2020
Popular analyst and trader ‘dave the wave’ was also bullish adding;
“This is the kind of conservative play from institutional money that will push BTC up this cycle imo.”
While crypto YouTuber Lark Davis, better known as ‘The Crypto Lark’ exclaimed;
“WOW! Fidelity now saying that #bitcoin should be 5% of an investor’s portfolio! Do you hear that distant rumble? The bulls are coming, it will be a stampede!”
Institutional interest in Bitcoin has been heightened this year, driven by the current ongoing economic adversity exacerbated by central bank fiscal stimulus and money manufacturing, which only adds to that sentiment.