U.S. federal debt has crossed $40 trillion, while Treasury yields have returned to levels last seen around the Global Financial Crisis. Bitcoin Suisse described the sovereign debt balance sheet as an increasingly important pressure point for markets.
It also complicates the traditional response to an equity-heavy portfolio to buy bonds. Stocks and Treasuries have increasingly moved together during major inflation, interest-rate and geopolitical shocks. Bitcoin Suisse argues this has weakened the assumption that sovereign bonds should automatically constitute a portfolio’s primary diversification play.
Bitcoin allocation
Bitcoin Suisse frames bitcoin as a potential source of portfolio resilience: volatile and sensitive to liquidity like a risk asset, but possessing monetary scarcity more characteristic of the traditional hard-asset sleeve.
Bitcoin is therefore not a conventional risk-off hedge, Bitcoin Suisse cautions. Instead, it means its underlying return drivers are sufficiently different to potentially improve diversification.
Its portfolio modeling provides an indication of what that could mean in practice. Bitcoin Suisse tested allocations of 1%, 2.5%, 5% and 10% in an otherwise conventional portfolio containing equities, bonds, gold and money-market assets. When bitcoin was funded from bonds, annualized returns increased from 6.2% with no $BTC to 7.2% with 1% and 8.6% with 2.5%.
$BTC improved both absolute and risk-adjusted returns throughout the tested range, whether the allocation was taken from stocks or bonds. Funding it from bonds produced the strongest historical absolute returns because equities remained untouched during a period when they substantially outperformed fixed income.
