Crypto assets have consistently outperformed the market over the past years.
As the asset class matures, institutional investors are entering the market.
The first U.S. pension fund invested in crypto in early 2019. Back then, that was a big deal. The most conservative branch of institutional investors was leaping into the still-nascent and supposedly risky asset class. Flash forward twelve months, institutions buying digital assets don’t surprise anyone anymore.
Crypto markets have changed in 2019. Institutions are now causing the lion’s share of crypto demand. What seemed surprising in February has become a normality in December. There are many reasons for this shift in investors sentiment: more advanced infrastructure, more legal certainty, but first and foremost, investors today better understand the asset class.
Crypto assets outperform every other asset class
Frank Wagner, CEO of Blockchain Investment Management firm INVAO, says, “If you look at risk and return, Bitcoin has outperformed every other asset class over the last five years. Even conservative investors should seek crypto exposure, as it significantly improves the risk-return profile of the overall portfolio.”
Studies prove him right. Binance Research measured the impact of a Bitcoin allocation between one and five percent on a traditionally diversified asset portfolio. When Bitcoin was included, returns were higher without significantly increasing the portfolio’s volatility or its maximum drawdown.
Looking at the Sharpe Ratio – a traditional finance metric that measures an asset’s performance in relation to its risk – Bitcoin has been on top of the asset class hill since 2013.
Institutions lack investment opportunities; crypto becomes an attractive alternative
In today’s market environment, institutions are not spoiled for choice. Bonds yield almost no returns anymore, stock markets have become increasingly risky, and low interest rates have resulted in overheated real estate markets.
In 2020, government bonds worth more than 127 billion euro will mature. Where to invest the money? Reinvesting in low-interest government bonds is barely an option. Institutional investors – including pension funds – need new opportunities. Looking at the past performance of digital assets, there may be an opportunity to boost portfolio returns right there.