Bitcoin’s correlation with the Nasdaq has been stronger than gold, suggesting a shift in how investors view this digital asset. A new ‘Mag 7B’ index proposal swaps out Tesla for bitcoin, promising higher risk-adjusted returns and lower volatility.
Bitcoin’s correlation with the Nasdaq has ‘almost always‘ been stronger than with gold, according to Standard Chartered Bank‘s analysis. This suggests that investors should view bitcoin more like a tech stock than digital gold.
Bitcoin is a decentralized digital currency that allows for peer-to-peer transactions without the need for intermediaries.
Created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto, Bitcoin uses cryptography to secure and verify transactions.
The total supply of Bitcoin is capped at 21 million, making it a scarce asset.
As of 2022, over 18 million Bitcoins have been mined, with new ones being created through a process called mining.
A New Perspective on Diversification
Asset managers have been advocating for including bitcoin in investment portfolios for diversification purposes. However, the traditional view of bitcoin as a safe-haven asset may be outdated. Instead, bitcoin can be seen as serving multiple purposes in investor portfolios, including both hedging against traditional finance and as part of their tech allocation.
Remodeling the Magnificent 7
Standard Chartered Bank‘s report proposes a remodel of the index of the so-called Magnificent 7 (Mag 7) stocks. This new ‘Mag 7B’ would swap out Tesla for bitcoin, resulting in higher risk-adjusted returns and lower volatility over the past seven years.
Key Benefits to Institutional Investors
The Mag7B produced consistently higher risk-adjusted returns than the original group, with nearly 2% lower volatility on an annual basis. This presents a key benefit to institutional investors and large asset allocators.
Opening Up New Opportunities for Institutional Buying
By including bitcoin in investment portfolios, investors can open up new opportunities for even more institutional buying. As Standard Chartered Bank‘s analysis suggests, bitcoin is no longer just seen as a safe-haven asset but as a valuable component of a tech-focused portfolio.
A Shift in Investor Perspective
The traditional view of bitcoin as a digital version of gold may be giving way to a more nuanced understanding of its role in investment portfolios. As the correlation between bitcoin and the Nasdaq continues to strengthen, it’s clear that investors will need to adapt their strategies to include this growing asset class.
A New Era for Tech Portfolios
The inclusion of bitcoin in tech portfolios presents a significant opportunity for institutional investors and large asset allocators. By recognizing bitcoin’s value as both a hedge against traditional finance and as part of their tech allocation, investors can tap into the growth potential of this emerging market.
