Grayscale Investments Suggests Digital Assets To Reshape Asset Allocation
Grayscale has recently released a paper that suggests the role of digital assets and what it might fall under. In particular, the paper revealed that digital assets fall into a risk-return model called the “Modern Portfolio Theory” (MPT).
It is believed that the research conducted took into consideration two factors. First, the team at hand wanted to,
“stress-test our hypothesis that digital assets fit squarely within Modern Portfolio Theory”.
Second, the team wanted to disclose the findings to individuals who,
“might benefit from understanding it to determine the optimal digital asset allocation within their portfolios.”
Grayscale appears to be in favor of the MPT, as they view it to being “incredibly valuable”, especially when it comes to investing over the long run. Associate, Beck has added that Bitcoin can help to diversify one’s portfolio, given that it abides by the MPT.
The paper seems to elaborate on the notion of ‘free lunch’, which was done as a way to indicate digital assets’ ability to help beta portfolios perform better, despite the volatility tied to it. So how might an uncertain asset bring improvements?
Two points were made in the paper and as per Bitcoinist they include:
“(i) digital assets represent a brand-new investment opportunity that is uncorrelated to other asset classes and (ii) investors are generally under-allocated to this sector.”
The team views digital assets as the “missing piece of the puzzle”, the puzzle being the beta portfolio. Grayscale’s paper offers several charts that indicate a month’s correlation, which vary from “negative correlation” to “positive correlation”, ultimately bringing a balanced out average correlation.
This alone, Grayscale believes, is enough to show that digital assets play an important role in diversifying porfolios. The lack of relationship between two assets is strong evidence for “diversification benefits”.
Clearly, Grayscale is taking the necessary efforts to evaluate and create investment tools for digital assets. In addition, the firm announced its most recent Ethereum Classic (ETC) investment trust.
In a previous interview with Fortune, the managing director of Grayscale, Michael Sonnenshein, shared that Bitcoin will either excel by pushing forward despite the many altcoins or it will fall flat as a failure to catch obvious trends.
In particular, Sonnenshein was quoted saying the following about the latter,
“It is possible something else may come along that will displace it and Bitcoin goes to zero.”