With Bitcoin consolidating its position right under its latest ATH on the price charts, the general mood in the crypto-market is one of bullishness and optimism. Such a mood swing has caught the attention of many in the mainstream, many of whom were previously hesitant about investing in cryptocurrencies. In fact, there is also an argument to be made that some within are also reconsidering the percentages of their crypto-investment allocations.
Bitcoin’s long-term price potential and crypto-investments and portfolios were two of the topics addressed by Breanne Madigan, Head of Global Institutional Markets at Ripple during a recent interview.
With the larger crypto-market brimming with optimism, Madigan shared a word of caution. Acknowledging the fact that many institutional investors and Fortune 500 companies have taken a shine to Bitcoin “by putting their treasury cash into Bitcoin and other cryptocurrency assets,” the Ripple exec said,
“This is all promising, but there will be short-term volatility.”
According to Madigan, a comparison of Bitcoin and Gold’s market caps reveals that there is a lot of room. In light of the fact that much of the nascent market is still in its early stages, one should ideally expect lots of volatility between now and BTC’s top, she said.
This is a fair comment to make. However, the statements and the latest correction in prices have done little to temper many investors’ expectations for Bitcoin. In fact, many believe that the entry of institutions like MicroStrategy and Square Inc. and the embrace of cryptocurrencies by PayPal will only accelerate BTC’s growth, with many expecting the cryptocurrency to be valued at over $100k in a few years.
On the question of trading strategies, Madigan recommended a barbell strategy – A non-traditional plan that contemplates dividing a portfolio between only extremely high-risk investments and no-risk investments. As statistician Nicholas Taleb once put it,
“If you know that you are vulnerable to prediction errors, and accept that most risk measures are flawed, then your strategy is to be as hyper-conservative and hyper-aggressive as you can be, instead of being mildly aggressive or conservative.”
According to the Ripple exec, what would work best is putting a portion of one’s allocation in “equity taking stakes in some of the most promising companies in the space,” after looking at their seven and ten-year returns. The other portion, she recommended, must be allocated between three or five cryptocurrencies. These cryptos, according to Madigan, must have a “story” and a “value proposition.”
She concluded by asserting that a 3% exposure to the asset class should result in at least a 15% outperformance versus a traditionally managed portfolio.
What is also interesting here is that Madigan’s comments came a few days after noted crypto-skeptic claimed that Bitcoin and cryptocurrencies have no place in institutional portfolios.
Madigan isn’t the first to comment on what might be the best strategy for an investment portfolio. In fact, a recent VanEck study had found that Bitcoin would improve the ‘risk and reward profile’ in portfolio allocation. Interestingly, AMBCrypto’s own research found that the era of a 60-40 portfolio allocation may be long gone, with a crypto-only portfolio yielding good returns too.