Posted by Jrinne at Feb 21, 2022 5:26:32 AM
Re: How Risky is Bitcoin?
I don't get the premise. Would anyone buy just Tesla? Or just Gold? Or just Bitcoin for that matter? Maybe I would use a timing method for an asset or asset class, but I would never go 100% into anything with my entire portfolio.

Looking at the volatility of a single asset does not make any sense if you are going to hold a portfolio of assets. And looking at beta in relation to SPY when it has very little correlation to SPY or the stock market in general. What? I think that has no meaning whatsoever.

Not only is Bitcoin poorly correlated to SPY as Scott points out, it is not very correlated to anything it seems. Not even GLD or XLE (commodity stocks). In fact, it is inversely correlated to gold and has almost zero correlation to XLE.

So assuming one does not think Bitcoin is in a bubble or that governments will regulate it out of existence one should probably own some Bitcoin (timed or not).

By doing so one can REDUCE THE VOLATILITY and increase the return of your portfolio at the same time.

A portfolio of SPY, TLT, and ^BTC, historically, has a standard deviation of 10.35% while holding 6.79% Bitcoin (^BTC). One can (should) adjust this based on how one thinks these assets will perform in the future of course.
Attachment Bitcoin Correlations.png (123038 bytes) (Download count: 120)

Attachment Max Sharpe Ratio.png (424326 bytes) (Download count: 115)

Great theory, "and yet it moves."
-Quote attributed to Galileo Galilei (1564-1642) gets my personal award for the best real-world use of an indirect proof or reductio ad absurdum.