Tensions between the US and China have escalated over the last few months, and the brunt was borne by the global economy. In such times of global instability and central banks manipulating economies, the demand for alternative assets, including Bitcoin, is speculated to go up drastically. Anthony Pompliano is one of those who feels so.
In the latest edition of “Off The Chain,” Anthony Pompliano, Co-founder & Partner at Morgan Creek Digital, wrote that Bitcoin is the perfect asset to add one’s portfolio.
In terms of portfolio construction for the current market scenario, Pomp noted that the risk-reward spectrum consisting of 95% cash and 5% Bitcoin is “incredible” as a loss of 5% in the worst-case scenario was still better than the drawdown suffered by S&P 500 last year, which accounted for -6.24%.
The upside of this scenario, according to Pomp, is that the asset will be worth a lot of nothing at all, which he termed as a “binary outcome” which potentially eliminates “chaos” in the economy for crypto-investors.
Radical Protection Portfolio
Pomp termed it as the “Radical Protection Portfolio,” primarily because of a max downside risk of 5% and potential upside returns of 20%+.
S&P500, Gold & US 10Y Treasury bonds are on a nice risk/return-line. Investors can do slightly better by mixing assets and capture correlation.#bitcoin risk/return is another universe. 1%BTC + 99%Cash portfolio: 10% return + max 1% loss, beating S&P on 2Y risk/return EVERY YEAR pic.twitter.com/KZaBjXogom
— PlanB (@100trillionUSD) February 8, 2019
Referring to a chart by a well-known crypto figure, @100trillionUSD, Pomp said,
“A 99% cash / 1% Bitcoin portfolio would have driven ~10% annualized returns. A 98% cash / 2% Bitcoin portfolio would have driven ~20% annualized returns. Both of these allocations accomplished this outperformance while simultaneously taking less risk than investing exclusively in Treasury bonds.”
Pomp went on to say that a 95% cash position will essentially give the investor leverage to purchase discounted and/or distressed assets. According to him, there aren’t any portfolios that could significantly beat the results of the Radical Protection Portfolio.
As with everything else in financial markets, this investment advice must be taken with caution.
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