Investors considering allocating to bitcoin are grappling with how to analyze it relative to traditional financial assets, given bitcoin’s unique properties and limited history.
Bitcoin, with its high volatility, is obviously a “risky” asset on a standalone basis. However, most of the risk and potential return drivers bitcoin faces are fundamentally different from traditional “risky” assets, making it unfitting for most traditional finance frameworks — including the “risk on” vs. “risk off” framework employed by some macro commentators.
Bitcoin’s nature as a scarce, non- sovereign, decentralized global asset has caused some investors to consider it as a flight to safety option in times of fear and around certain geopolitically disruptive events.
As the global investment community grapples with rising geopolitical tensions, concerns over the state of U.S. debt and deficits, and increased political instability around the world, bitcoin may be seen as an increasingly unique diversifier against some of these fiscal, monetary and geopolitical risk factors investors may face elsewhere in their portfolios.
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