68% of HNWIs Bullish on Blockchain Investments: An Effective Tool for Portfolio Diversification
A growing body of research suggests institutional investors are gearing up for blockchain investments. The main reason: The asset class offers multiple advantages for portfolio diversification.
“There is growing, universal acceptance that cryptocurrencies are the future of money – and the future is now,” says Nigel Green, founder and CEO of deVere Group. The wealth adviser has more than 80,000 clients and $12 billion under advisement.
His view is in-line with what many experts have already predicted last year: 2019 is the year when institutional investors begin to discover blockchain as an asset class.
Majority of HNWIs plan to invest in digital currencies within the next three years
deVere Group has conducted a study including 700 clients from different countries, all of which had at least £1 million in investable assets. The result: 68% of high-net-worth investors (HNWIs) plan to invest in a digital currency within the next three years.
“The research shows that wealthy individuals are increasingly seeking exposure to cryptocurrencies,” said Green. “Crypto is to money what Amazon was to retail. Those surveyed clearly will not want to be the last one on the boat.”
Green said his firm is already observing that HNWIs are rebalancing their portfolios towards digital assets. He also believes investors will become increasingly interested in altcoins, and Bitcoin will eventually lose its unique position in digital markets.
Other surveys have come to similar conclusions. Fidelity Investments, one of the largest asset managers in the world, has found that 50 percent of institutional investors are bullish on digital currencies. 20 percent have already undertaken first investments in blockchain assets.
Fidelity has decided to take action and get ahead of its top competitors that have so far mostly shied away from digital assets. Fidelity will start buying and selling Bitcoin on behalf of institutional clients within the coming weeks.
“We currently have a select set of clients we’re supporting on our platform,” said Fidelity spokeswoman Arlene Roberts in an email to Bloomberg. “We will continue to roll out our services over the coming weeks and months based on our clients’ needs, jurisdictions, and other factors. Currently, our service offering is focused on Bitcoin.”
Digital currencies are an effective tool for portfolio diversification
Green cites the technological growth prospects and “Fear of Missing Out” as key drivers behind HNWI’s interest in digital currencies. Another investment narrative is even more essential for institutional investors: Blockchain assets can enhance the risk-return profile of traditional asset portfolios.
Bitcoin’s correlation to traditional asset classes like equity or fixed income is close to zero. Thus, price movements of Bitcoin have almost no impact of other asset classes and vice versa. When mixed with other asset classes, the non-correlation of blockchain assets offers downside protection in case traditional markets turn bearish.
Moreover, Bitcoin has outperformed traditional asset classes in terms of risk-adjusted returns over the past years. The figure below shows Bitcoin’s Sharpe Ratio compared to other asset classes, a popular measure for the excess return an investor receives compared to the increased price volatility he endures when holding an asset with higher risk.
Both, Bitcoin’s non-correlation to other asset classes and its ability to outperform the market’s risk-return profile makes it an ideal tool for effective portfolio diversification. This, combined with the enormous growth prospects of the technology, is the reason why institutional investors are looking at investing in blockchain assets.