Risk-adjusted crypto investment a positive for fund managers

But adjusted for daily volatility, Bitcoin’s return since September has been more than twice that of the S&P500 Index and easily outperforms the negative reading for Treasury Bonds.

The risk-adjusted return is calculated by dividing total return by volatility, or the degree of daily price variation. The measure, which isn’t annualised, is designed to show performance per unit of risk.

With global interest rates below 1 per cent on average, Mr Vandewilt said Bitcoin exposure, on a risk-adjusted basis, makes a lot of sense for many fund managers.

“No one’s encouraging people to put 50 per cent of their assets into something when volatility continues to be so high,” said Mr Vandewilt.

“But people are starting to think about it as an addition, and they need to know how much they can handle in a portfolio when interest rates are at different levels,” he said.

“On a risk-adjusted basis, it starts to make a lot of sense.”


Jon Deane, chief executive officer of TCM Global Asset Management, agreed saying crypto is a highly capital efficient way of getting returns.

“From an allocation perspective you only need to allocate 1 to 2 per cent for it to make quite a meaningful allocation to the portfolio,” said Mr Deane.

“That said, this market isn’t all about price appreciation.”

Mr Deane, who spent a decade at J.P. Morgan as head of commodities trading before launching TCM, cautioned against lumping all cryptocurrencies together, pointing out they have different use cases and are disintermediating different sectors.

“From an asset allocation perspective, you need to work out what you’re betting on,” he said.

“Are you thinking about the future of DeFi? Are you thinking about an inflation trade? Because thinking about it from a utility point of view is the first step, then looking at how you’re going to slice and dice that allocation.”


Mr Deane also pointed out investors can access a ‘market neutral’ investment through decentralised finance, or DeFi, protocols, where they can generate returns by providing liquidity to markets and retrieving a fee or a yield.

These automated market makers give investors exposure to the crypto-based infrastructure that challenges traditional banking, he said.

“This is the disintermediation of a large part of the financial services sector, which is both really exciting but also kind of scary,” said Mr Deane.

“Because that service layer is where society currently operates and jobs and GDP are generated there, and what we’re talking about is the value attribution moving back to the asset owner.”


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