Bitcoin & Cash Investments May Outperform Gold, S&P 500, Bonds Portfolios

Omar Faridi
  • 1% bitcoin, 99% cash portfolios may (statistically) outperform traditional assets, analysts says.
  • S&P 500, US Treasury bonds, gold yield nice returns, but a small allocation of bitcoin could be better.

An investment portfolio comprising of 99% cash and only 1% bitcoin (BTC) may yield higher returns when compared to a portfolio (of equal size) that consists of S&P 500 stocks, the gold bullion, and US Treasury bonds.

This, according to Twitter user planB, who is a cryptocurrency advocate and economics analyst. S&P 500 refers to a US-based stock market index based on the valuations of 500 large firms whose common stock trades on Nasdaq, New York Stock Exchange (NYSE), and/or the Cboe BZX exchange.

Meanwhile, US Treasury bonds are preferred by investors who have “low-risk tolerances or a focus on generating income.” Treasury bond holders can expect to earn a “steady rate of interest throughout the bond term, and each instrument is backed by the full faith and credit of the US federal government.” Moreover, Treasury or T-bond “returns do not fluctuate over time, and interest payments are exempt from both state and federal taxation.”

1% Bitcoin Component May Perform Better Than Traditional Investments

According to planB, an investment portfolio that consists of T-bond, S&P 500, and gold bullion allocations have a “nice risk/return-line.” However, replacing 1% of a portfolio with bitcoin allows investors to statistically increase the amount of returns they can expect to earn, planB’s analysis suggests.

While recommending BTC investments, planB warned that all “cheap altcoin copies of bitcoin are irrelevant, like monopoly money” to USD. As described by planB,

[Bitcoin] risk/return is another Universe.

A portfolio with 99% cash and 1% BTC can offer 10% returns, while incurring a maximum 1% loss, planB’s data shows. Significantly, this return rate exceeds the S&P 500’s 2-year risk/return record “every [financial] year”, planB noted.

As planB’s chart indicates, a 2% BTC allocation may yield even higher returns, while a 0.5% bitcoin component does not (statistically) perform as well as the 1 and 2% allocations.

Bitcoin Is A "Non-Correlated" Asset

As CryptoGlobe reported in late December 2018, Anthony “Pomp” Pompliano, the founder and partner at Morgan Creek Digital Assets, an investment firm that helps institutional investors gain exposure to cryptoassets, had recommended investing only “1 to 2%” of an investment portfolio into bitcoin. At that time, Pompliano had also said that there was no, or “near zero”, correlation between the performance of bitcoin and that of traditional assets in the past 6 months.

Although it’s unclear whether there’s any relationship between the price movements of digital assets and more traditional forms of investments, an increasing number of market analysts now recommend investing small amounts in cryptocurrencies. Research published by professor at Yale University (in August 2018) recommended investing between 4-6% of one’s portfolio into bitcoin.