Every Portfolio Should Have 6% Bitcoin: Yale Study

With bitcoin (BTC) hype seemingly settled in comparison with its peak levels in late 2017, investors seem to have fallen into two distinct camps. On one hand, there are the strong proponents of bitcoin as a leader among cryptocurrencies; these individuals tend to hold quantities of BTC, often for long periods of time and in the hopes that the cryptocurrency will experience a dramatic spike in value once again, or they buy and sell bitcoin on a more short-term basis. On the other hand, there are investors who tend to scoff at cryptocurrencies in general. These investors are those who have yet to set up a cryptocurrency wallet or incorporate digital tokens into their portfolios. According to a recent study out of Yale University, this latter group of investors may be best off giving in to the bitcoin hype to some degree.

Optimal Portfolio to Include at Least 6% BTC

According to the study, by Yale economist Aleh Tsyvinski and reported on by Bitcoinist, BTC should occupy about 6% of every portfolio in order to achieve optimal construction. Even those who are strong bitcoin skeptics should maintain at least 4% BTC allocation, said the study. The study indicates that even the staunchest opponents of the cryptocurrency world are best off investing 1% of their assets in this space, if only for diversification purposes.

Higher Potential Return?

According to the study, Tsyvinski demonstrated that cryptocurrencies enjoy higher potential return than other asset types despite of their higher volatility. The study only examined bitcoin, ethereum and ripple, so it is not intended to provide a comprehensive view of the industry.

Dragan Boscovic of Arizona State University has come to similar conclusions. He noted that "institutional investors are recognizing this new asset as a valued investment opportunity; this will encourage individual investors. It will also encourage consumers and small shops to start trading in cryptocurrency." On the other hand, Tsyvinski's study stands in contrast with that of Nobel laureate Robert Shiller, who suggested in May that bitcoin is a failed experiment and "another example of faddish human behavior." In the long-standing debate over the viability of digital currencies as an area of investment, each side has plenty of supporters.

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.

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