Fidelity: Bitcoin volatility is worth the risk for institutions

A new report reveals a number of particularly bullish factors regarding Bitcoin and the wider crypto industry

In a recently published report entitled Bitcoin Investment Thesis, Fidelity Digital Assets demonstrated how portfolio managers could increase profitability by allocating funds to Bitcoin (BTC).

In addition, the report speculates that in the near future, increased institutional interest could expand Bitcoin Profit market capitalization by hundreds of billions of dollars.

Fidelity Digital Assets

To support the thesis, Fidelity has simulated sample portfolios starting with a default allocation of 60/40 between equities and fixed income instruments. Subsequently, the researchers diversified the samples with Bitcoin with shares between 1 and 3 percent. In each scenario considered by Fidelity, portfolios with higher Bitcoin allocations performed better than their less diversified counterparts.

Assets that are negatively or poorly correlated with the rest of the market provide additional benefits to portfolio managers. They enable them to reduce volatility without having to sacrifice returns. The simulated portfolios that continued to hold Bitcoin benefited from its low correlation with traditional assets. However, the report admitted that the increasing adoption of Bitcoin by the financial sector could lead to greater correlation in the future, thus reducing the benefits of diversification.

In addition, the Fidelity report estimated the potential redistribution of investments from alternative and fixed income instruments to Bitcoin. The market in this category is estimated at $13,400 million, so if Bitcoin were to acquire 5%, its market cap would increase by $670 billion. If it had to acquire 10% of it, the capitalization would grow of 1.300 billion dollars. The bond market is worth about 50,300 billion dollars. If Bitcoin managed to capture 1% of it, its market cap would receive another 500 billion dollars.

According to the report, steadily declining bond yields could push asset managers more and more towards alternative assets. If the most optimistic forecasts materialize, Bitcoin’s capitalization could reach $2,000 billion.