While bitcoin (BTC), as an investment, is still attractive because it is an independent, alternative, and uncorrelated asset, a growing institutional investor base could increase bitcoin’s correlation with other traditional assets, according to Fidelity Digital Assets (FDA), a crypto arm of US-based mutual fund giant Fidelity.
As BTC is becoming increasingly integrated into institutional portfolios, it could become more and more correlated with other assets, and external events might have a growing impact on bitcoin, “especially if bitcoin’s narrative converges on a single use case”, Ria Bhutoria, Director of Research at FDA, said in a recent report, named Bitcoin Investment Thesis.
“In other words, if bitcoin becomes more correlated with certain assets in light of this potential trend, its portfolio diversification benefits relative to certain assets could decline,” Bhutoria said.
As for now, due to its multifaceted narratives and persisting retail and growing institutional sentiment, “bitcoin is fundamentally less exposed to the prolonged economic headwinds” that are threatening other assets. As such, it “could be a potentially useful and uncorrelated addition to an investors’ portfolio toolkit,” the researcher said.
According to her, there are four reasons why bitcoin has exhibited low correlation in the past, namely:
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