The “60/40 portfolio” has long been revered as a trusty guidepost for a moderate risk investor — a 60% allocation to equities with the intention of providing capital appreciation and a 40% allocation to fixed income to potentially offer income and risk mitigation.
Those traditional portfolios are getting destroyed on both sides simultaneously, for the first time in history. The traditional safe haven isn’t working this time around, which underscores the argument that “this time is different.” Bonds may be a deadweight allocation for portfolios from now on — or worse.
One potential way out is looking at new assets (and asset classes) that can guide the way into the future: once we pass defining historical moments, what was working before stops being true and new movements take root. Crypto is definitely one of those movements.
Still, even in a completely new market, any expert worth his salt would say that diversification is still the best inflation hedge.
However, in the cryptosphere, each cryptocurrency has developed its own particular solution to token inflation issues, depending on numerous factors.
Historically, cryptocurrency experts and investors deemed Bitcoin to be an inflation hedge asset due to its limited supply of 21 million and its speculative nature. Bitcoin’s value is, in theory, uncorrelated to the stock market, putting it in a category of investments known as “alts” (alternatives) alongside fine art, wine, and precious metals.
But lately, the crypto market has increasingly tracked the traditional market, especially the Nasdaq, suggesting that Bitcoin is actually correlated with stock markets and hence a poor inflation hedge.
Well, that depends on timeframes.
In order to establish historical relevance for correlation, we need both analysed markets to be in the same conditions (apple vs apple).
Look at gold, for instance: If you just decided to cherry pick points in time, certain data points throughout its history, sometimes you could look at gold and say it is an excellent inflation hedge — but you’d have to ignore all the times it simply wasn’t.
As you can see from the chart, depending on where you set start/end points for your analysis, different theses can be pursued and all valid within those parameters.
It is also fair to state that by zooming out, this logarithmic Bitcoin price chart is drawing a positive picture.
Crypto markets are still evolving and it will be very difficult to draw conclusions basing ourselves only on price dynamics and market data.
The only valid analytical way out is to look at fundamentals.
Following we hand-picked a list of tokens that should be in a diversified portfolio with high-inflation hedging properties.
In conclusion, if crypto really aspires to be Finance2.0, it clearly needs to learn from traditional finance mistakes and improve its model to better serve its final user: humankind.
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