A new research paper published by Grayscale Investments says that digital assets can “enhance strategic asset allocation and help investors build portfolios with higher risk-adjusted returns.”
Digital Assets Fit With Portfolio Success
The researchers claim that digital assets fit into the risk-return model called Modern Portfolio Theory (MPT), just like traditional commodities.
Modern portfolio theory (MPT), or mean-variance analysis is a framework for assembling a portfolio of investments in a way that maximizes profit for a given level of risk.
Matthew Beck, the associate who penned the report, explains why they wrote the report:
“Our motivation for creating this paper was twofold. First, we wanted to stress-test our hypothesis that digital assets fit squarely within Modern Portfolio Theory, a time-tested and proven approach that many investors are using today to build better portfolios. Second, we wanted to share our analytical framework with those who might benefit from understanding it to determine the optimal digital asset allocation within their own portfolios.”
Although digital assets like cryptocurrencies gain nothing but scorn from traditional finance sources, Beck writes that they can, in fact, improve an investor’s portfolio.
Diversifying Is The Name Of The Game
The report recommends diversifying your portfolio, improving its efficiency while still keeping risks to a minimum.
Studies conducted by Grayscale’s research team shows that digital assets work as a diversifying component in multi-asset portfolios. The researchers believe a multifaceted approach to investing using both traditional and digital assets will produce positive results.
Grayscale Investments continues to be an active force in the world of crypto. Last May, the firm revealed their dedicated investment trust for Ethereum Classic.
Last June, Michael Sonnenshein, the firm’s managing director, said he believed Bitcoin’s future depended on the cryptocurrency staying relevant in a changing world.
In an interview with Fortune magazine, he said:
“It will either survive and become all these amazing things that we think it can be, which will cause its price to be a lot higher. Or it is possible something else may come along that will displace it and Bitcoin goes to zero.”