The rapid development of institutional grade financial infrastructure such as exchanges and custody arrangements has made digital assets such as Bitcoin more accessible to traditional asset managers, ETF issuers and other investment institutions. However, questions of how to think about allocation to digital assets and the mitigation of risk are not widely considered.

In this paper we:

  • Examine the higher volatility of digital assets compared to traditional assets such as equities and fixed income, and weigh the pros and cons of deep drawdowns vs very low return correlation with other assets
  • Discuss a number of sophisticated techniques designed to manage the portfolio allocation risks that Bitcoin can cause