6 min readWelcome to the very first edition of Portfolio Dynamics, your monthly investor update & guide to crypto.
In this article, our team reviews a curated selection of headlining coins within our ETP offer that are making waves in the market, as well as providing a comprehensive view of flows within digital asset investment products to get a grasp of investors’ sentiment. Lastly, we review the performance of a balanced investment portfolio containing stocks, bonds and 4% bitcoin—a recipe that pursues to prove its success over the years.
Let’s dive in!
Headlining Coins
In this June edition of Portfolio Dynamics, we look at Bitcoin, which has recently driven the market uptrend, as well as Ether & Chainlink's recent dynamics.
Bitcoin
The approval of BlackRock's ETF holds the potential for substantial tailwinds propelling the Bitcoin price forward, enhancing accessibility for investors but also bolster the asset's credibility amidst a broader regulatory crackdown on cryptocurrencies, while fostering positive network effects built upon the foundation of Bitcoin. It is worth noting that market liquidity remains relatively low, which could result in heightened volatility, particularly with the introduction of new leveraged ETFs. Nevertheless, we maintain a strong outlook for BTC's dominance to persist unwaveringly.
BTC Market Capitalization: $591.4B (Glassnode, 29/06/2023)
Ethereum
A significant portion of the gains observed in Ethereum, much like other substantial alt-coins, can be attributed to its robust correlation of over 80% with bitcoin. The prevailing narrative has now become less prominent, and no significant catalysts appear imminent to autonomously propel the price upwards. Presently, the market structure diverges considerably from that of Bitcoin. Dealers exhibit a positive gamma stance, resulting in a relatively diminished likelihood of a gamma squeeze—a sharp upward surge—in Ethereum.
BTC Market Capitalization: $222.3B (Glassnode, 29/06/2023)
Chainlink
Chainlink's collaboration with SWIFT to establish seamless connections between prominent financial institutions such as BNP Paribas and blockchains are advancing well. The triumph of this initiative could unlock substantial revenue streams for the network, surpassing the current programs pushed by the Foundation by many orders of magnitude. LINK has staged a resurgence, reclaiming its position in the $5 range following a brief dip, consolidate support. The market's trajectory hinges on the sustained support within the $5.50-6.00 range, signaling a potential breakthrough to new heights.
BTC Market Capitalization: $3.2B (Glassnode, 29/06/2023)
Investors Activity - Monthly Fund Flows
What were investors' moves this month in the market? In Fund Flows, we break down the capital flows in digital asset investment products, including CoinShares Exchange-Traded-Products, providing you with the prevailing market sentiment.
Digital asset investment products saw the largest single weekly inflows since July 2022 in Week 25, totalling US$199m, correcting almost half of the prior 9 consecutive weeks of outflows.
Bitcoin was the primary beneficiary, seeing US$187m inflows last week, representing 94% of the total flows. Short-bitcoin saw outflows for the 9th consecutive week totalling US$4.9m. This turn in sentiment didn’t trickle down to altcoins with only very minor inflows.
Numbers speak for themselves: overall, investors have favoured bitcoin exposure this month and even reduced their Ethereum investment product exposure.
Portfolio Review
Conventional wisdom is that bitcoin has had great returns but it does that by adding substantial risk (volatility) to a traditional equity/bond portfolio.
However, our research has found that:
Small weightings of bitcoin have an outsized positive impact on risk-adjusted returns and diversification relative to other alternative assets.
Bitcoin’s lack of correlation to other assets make it a useful alternative asset that can help reduce exposure to economic cycles.
Quarterly adjustments (rebalancing) of Bitcoin, back to the original weight in the portfolio can help limit volatility and enhance return.
Looking at data since 2015, which include several significant drawdown periods of 74% and 83%, Bitcoin has been a much better diversifier than other alternative assets that could be considered, such as gold.
More recent strong performance has seen the risk-adjusted returns (Sharpe ratio) rise to 1.2, more than double that of a benchmark 60/40 portfolio and a portfolio with 4% gold.
It is key to note that regular rebalancing dramatically reduces the volatility problem of Bitcoin in a portfolio.
Stay up to date with CoinShares
That's a wrap for this edition of Portfolio Dynamics.
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Curious to learn more about digital assets? Explore our investment guides & analyses and discover our comprehensive crypto ETP offering.
