Why is Wall Street increasingly investing in cryptocurrencies?
Many people think that investing in crypto is just a speculative gamble, but this view seems to be outdated. Crypto is now becoming a favored option for institutional investors.
A clear indicator of this trend: by Q2 2024, there were 1,271 investment firms holding Bitcoin ETFs, up 30.9% from Q1.
This shift highlights a growing investment strategy: adding crypto to portfolios to potentially lower risk and boost returns.
Understanding the strategy: Modern Portfolio Theory
To grasp this strategy, we should look at Modern Portfolio Theory (MPT), introduced by Nobel Prize-winning economist Harry Markowitz in 1952. MPT emphasizes two key points:
Portfolio risk depends not only on the volatility of individual assets but also on their correlations.
Diversifying across assets with low correlations can reduce overall portfolio risk.
Crypto is often seen as risky, but its low correlation with traditional assets like stocks and bonds could potentially make it a suitable addition to portfolios.
For instance, Bitcoin has a correlation coefficient close to zero with major asset classes, indicating independent price movement.
The correlation coefficient ranges from -1 to 1; closer to 1 or -1 indicates a stronger correlation, while closer to 0 indicates a weaker correlation.
Low correlation means that when traditional assets decline, crypto may remain stable or climb, helping to manage risk and enhance returns. Conversely, if crypto falls, traditional assets might hold steady or rise, reducing the overall impact on the portfolio.
Why crypto is worth investing in?
Crypto, powered by blockchain technology, presents new investment opportunities with significant potential. Its applications include:
New Currency: Crypto has revolutionized traditional currency concepts, with a growing user base opting to replace fiat money.
Regulatory Changes: Regulatory attitudes towards crypto are becoming more favorable. For example, Trump openly supported it during 2024 U.S. election.
Inflation Hedge: Some crypto, like Bitcoin (BTC), act as "digital gold," providing a hedge against fiat inflation.
Technological Prospects: Blockchain-based new business models and economic systems have the potential to transform various industries, such as finance and social media.
More importantly, despite high volatility, crypto has historically provided strong cumulative returns. For example:
In addition to a growing number of financial institutions, some non-financial public companies, like $Tesla (TSLA.US)$ and $MicroStrategy (MSTR.US)$ , have also started holding crypto, attracting significant media attention.
What can individual investors do with cryptos?
Many individual investors are exploring the idea of allocating a portion of their portfolios to crypto. Research by CCData suggests that even small allocations (5%) could enhance risk-return profiles.
Starting with established cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) is advisable due to their larger market caps and lower volatility.
For individual investors, selecting the right platform for trading crypto is essential. Moomoo is a fantastic choice:
Moomoo SG is the first digital brokerage to obtain a MPI License from the Monetary Authority of Singapore (MAS) for crypto services.
On moomoo SG, you can conveniently invest in both crypto and traditional assets in one place, along with access to a wealth of news, courses, and community content.
For details on how to proceed, please check this content：How to Trade Crypto on moomoo
This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more
