The Impact of Crypto Integration on Investment Portfolios

Transcript

It's my honor to announce the next keynote coming up on stage. Um, we will have Ronald Richa, the regional director of Bitwise Europe, and he'll be speaking to you about bridging traditional finance and innovation, the impact, pardon, the impact of crypto integration on investment portfolios. Please put your hand together for Mr. Rich from Bitwise. Good morning. Thank you everyone for being here and listening to this panel. You have a lot of stuff to go through.

So, thank you very much for sticking around. And I would like also to thank the Crypto Valley Association for the opportunity of to be here and also Cheetah Dugano for their big help in organizing this event. So this morning you have spoke you have seen and listened to uh a few panels and presentations. Uh you have seen and heard that crypto uh is here to stay. Um and uh that you cannot ignore it anymore. Uh so you must invest. You've you've heard that uh for instance uh companies like Black Rockck have introduced uh these um uh are

introducing now Bitcoin into that uh into their portfolio. So uh what's next? So I am here just to explain a little bit uh the impact of an investment onto a traditional portfolio. But first of all, obviously the the usual there's no guarantee. Past performance does not obviously is not a guarantee of of future performance. Um first of all a quick word on Bitwise for those who don't know who Bitwise or what Bitwise is. We are um we have launched or created the company in 2017. We are consider ourselves a pioneer in the space. We are a group that is 100% specialized on crypto. So we do only

this and we cater to institutional investors. As said we are there since 2017. We have 100 employees across the globe now. Um since last year also in Europe through the acquisition of etc group. So 100 plus employees across San Francisco, New York and London. We have 31 products. So what do we do? We are an issuer, an ETF, an ETP issuer. We also have Alpha Strategies product. So something more dynamic and more active actively managed. And we also have staking solutions for institutional investors. And last but not least, we are quite proud of that figure and

obviously trying to grow it. It's as of today around 12 billion assets under management. So which makes us one of the largest crypto specialized asset managers in the world. So as said talking about integration of crypto into portfolios does it feel like this like our friend Wy Coyote is it worth integrating crypto or does it feel like we are you are jumping into the void without a parachute? So we'll find out. I have as a caveat I have most of the metrics and example used are using bitcoin to make it simpler. We're not going to go into all the the details uh

about the other cryptocurrencies but as also was said in the precedent uh preceding panel uh bitcoin is one of the most used um cryptocurrencies. So let's just focus on that first metric performance. Here you can see this has been used quite a lot. Uh, Bitcoin has been one of the best performing assets over the p over the last 14 years. Um, obviously it has had uh some corrections, some deep corrections but on a cumulative basis Bitcoin has and and with other crypto assets has been the best performing asset class uh since 2011. So from a perform performance

perspective, uh it if you missed out on that, you are you're having a problem. However, those returns come with a lot of volatility. On the left, you can see a graph. There is the volatility over a few years um of Bitcoin and Ethereum against other asset classes in situations where uh you have for instance COVID the COVID crash or other uh environments that are a bit more risky. You can see that the other asset classes are behaving also with high volatility. So the in general

volatility is obviously high in crypto but uh it is comparatively acceptable and getting more acceptable. Um the on the right you have a graph on Tesla, Nvidia and Meta the respective uh volatilities. People use the MAX 7 as the best proxy to a to a crypto allocation. And here you can see that for instance the the green line is um is is Bitcoin. You can see that Bitcoin is is less volatile than than some of these um uh of these stocks. And if you look also historically uh who hasn't invested in Amazon in the early days the behavior and the look of uh the pattern or the or the graph of Bitcoin's

volatility over the time uh is resembling very much what Amazon looked like 20 years ago. And the volatility is decreasing over time as uh along the way it's getting um more and more adopted. We can see that the volatility is going down. And on the right you have graphs that show um the dist the distribution of returns after each havinging. And we are getting to a point where those extreme um returns on the right side and on the left side of the graph are getting shallower which means that those extreme um bad returns are getting less and less

fewer and fewer. I think most most importantly is Bitcoin and crypto assets have become an asset that can diversify a portfolio. their behavior in terms of performance is completely different from the rest of the asset classes that are around. So if you just take the example of Bitcoin, look at the the correlations, 0.12 against equities, 0.1 against the S&P, uh against gold or bonds, very low. So Bitcoin and crypto assets have really a place to be in a portfolio because they behave completely differently.

What does it do in terms of performance? You have on the first line the a 6040 portfolio uh without bitcoin and then the examples with bitcoin inside 1% 2 and a half 5%. You can see returns increase dramatically and in in uh interestingly volatility does not increase that much and draw downs also stay quite limited depending on how much crypto you integrate.

This is just to show a bit what uh the contribution of a 5% allocation to bitcoin does over that period from 2017 to 24 100% win rate with maximum contribution of 47.6%. So positive conclusion it's positive and if you look at risk adjusters met metrics we have if you a lot of you or your clients are looking at um sharp ratio and sortino ratios here um we go even up to 12% to to optimize the sharp ratio. So quite interesting if you replace uh bonds or equity you can see how the

sharp uh increases and improves and on the right side you have also the um sortino ratio indication uh like with a sharp an allocation increasing allocation uh increases the the sortino ratio. Last word on rebalancing. We have found out that um if you rebalance monthly or quarterly it gives you the best results. Above that it will start destroying uh the risk profile of the portfolio. So finally you or your clients what will you do? Will you adopt the same approach as this investment

committee just ignore it or can't you ignore it and just embrace it? Uh with like the other panels have said or the other keynote speaker said we can see you have the ETFs who are growing very fast in the in the US strategic reserves on Bitcoin. You have countries embracing it. You have companies, treasuries embracing it. So we think you can you cannot ignore it and you have absolutely to look at this. So if you are willing to uh have this kind of discussion and walk with us, don't hesitate to contact us. And here you can follow us on

LinkedIn or on uh on our website u with research. And if I can still not motivate you to talk to me, I will bribe you. We have some bitcoins available here today. So come and talk to me and we'll hand you hand some of these out. Thank you very much. [Applause]