Ari Paul Talks About Investment Risk And How To Allocate Funds Into Bitcoin (BTC)
There are several experts and analysts that have been talking about how to invest in virtual currencies and spread risk among different assets. In general, virtual currencies are considered to be very risky and volatile for individuals to place their funds on them. However, Ari Paul, the CIO of BlockTower Capital, explained that it is not “too risky” to invest in Bitcoin depending on how investments are allocated.
Is Bitcoin Investment Too Risky?
Ari Paul wrote a thread on Twitter regarding the way in which investors should place their funds in digital currencies. In general, the intention is to reach an equilibrium between risky assets and other stable investment tools. However, there are several individuals that place large sums of money on digital currencies and others that do not want to put even a few dollars in the market.
Paul explained that the fundamentals of risk and return went hand in hand and that they should be taken into account as a combined parameter. The risk can be controlled by sizing up the investment in different ways.
He commented that if there is an investor that has $50,000 in savings, if they put half of them in Bitcoin that would be very risky for the user. However, if he decides to put just 1% of his funds, that would reduce the risk of the total portfolio by diversifying.
16/ Similarly, if you have $50k in savings, putting half of it in Bitcoin would indeed be "too risky" for you. But putting 1% of that into BTC isn't. Putting 1% of that into BTC probably *reduces* the risk of your total portfolio because it's diversifying.
— Ari Paul ⛓️ (@AriDavidPaul) April 30, 2019
Anthony Pompliano, the co-founder of Morgan Creek Digital, informed earlier this year that there are public pensions already investing in Bitcoin. He has also written an article in which he says that every single pension fund should buy Bitcoin. In this post, he explained that pension funds are having trouble to deal with an aging population and that in order to solve this problem they could invest in the most popular cryptocurrency.
He mentioned two different things. The first thing he said is that Bitcoin is a non-correlated asset. That means that there is an almost 0 correlation to different indexes such as the S&P 500.
Furthermore, Bitcoin has an asymmetric return profile since there is much more upside than downside in owning the asset. Nonetheless, the downside is capped at the total amount of capital invested.
About it, he mentioned:
For example, an invesment of 1% of assets at $4,000 BTC price would yield a 25% increase in the pension’s total assets if Bitcoin reached $100,000. If a fund decided to investo 0.1% of assets, the same price appreciation would increase total assets by 2.5%.
At the moment, several institutions have no exposure to digital assets, and this has to change, according to Anthony Pompliano.