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Between the Lines
How Risky Is Bitcoin, Really?
And how should it fit into your portfolio?
Off and on, friends ask me why I’m not working at or running a crypto hedge fund. I’m interested, worked in the industry for a while, like to think about esoteric financial topics, etc. But I’m not sure what I’d actually do as a full-time crypto investor. Currencies are a Schelling point, so unless you think bitcoin will collapse, the correct trade for a crypto fund is to be long bitcoin, at which point there are only two questions for the manager to answer:
- How long?
- Long how?
I’m long bitcoin in my personal account, and consider it an extremely speculative position. However, it’s also a unique asset. For a typical asset allocator — an institution trying to own a basket of assets with favorable risk-adjusted returns — the right cryptocurrency allocation is close to zero, but nonzero.
Asset allocators have to fit every position into their portfolio — to think about risk/reward and correlation to other asset classes. I’ll address both concerns in this piece.
The bull case for bitcoin
Bitcoin is a store of value that got invented backward.
