As Bitcoin is expected to be a key part of decentralised finance (DeFi), investors seem to wonder how its addition to their portfolios will benefit. It is believed that Bitcoin’s inclusion in a portfolio can diversify benefits and help reduce overall risks.
Insights from Allied Market Research, a market research firm, stated that global crypto asset management was valued at $0.67 billion in 2020 and is expected to reach $9.36 billion by 2030, at a 30.2% compound annual growth rate (CAGR) for 2021-30. “To assess the influence of Bitcoin on portfolio diversification, one should look at how it has diversified with traditional financial assets, emerging markets and commodities,” Prashant Kumar, founder and CEO, weTrade, a cryptocurrency-based platform, told FE Blockchain.
According to market reports, decentralised networks can help ensure transparent transactions and lower fees by eliminating intermediaries. As stated by Alexandria, an educational content website, as volatility increases both profits and losses, Bitcoin-based investors should spread their portfolios across a group of digital assets. Furthermore, Bitcoin is considered appropriate in terms of store of value assets. “Investing in Bitcoin and other cryptocurrencies helps provide diversification in terms of sectors as well. I think decentralisation allows for security and autonomy for investors where transactions are validated by a group of users rather than a single authority,” Edul Patel, co-founder and CEO, Mudrex, a global crypto investment platform, stated.
However, investors with Bitcoin-based portfolios should be aware of ponzi schemes and fake initial coin offerings (ICOs). HoneyBricks, a blockchain-based platform, has shown that Bitcoin-based portfolios can give rise to taxation drawbacks and lower investment returns. Reportedly, sectors such as healthcare, transportation, supply-chain, real estate, private equity, among others, can benefit from crypto portfolios.
Moreover, market analysis predicts that Bitcoin-based portfolios will contribute towards the DeFi landscape, in terms of security and decentralisation. According to a research paper of Ohio State University, an educational institution, Bitcoin carries low correlations with other securities and its portfolios can ensure higher returns than those without the currency, with regard to its volatility factor. “Technology in the DeFi space aims to expand upon and enhance the TradFi system, which might benefit users. I believe it is crucial to understand DeFi and to be ready to interact with and rely on these applications as the space continues to develop and grow,” Ravindhar Vadapalli, professor of blockchain, analytics and finance, Mittal School of Business, Lovely Professional University, an educational institution, noted.