Bitcoin Is Earning Its Place in a Balanced Portfolio

It should be no surprise that Bitcoin sold for over $44,000 this week, more than double its March 13 price. Going back to 2014, it has taken the cryptocurrency an average of nine months and 21 days to double; the milestone came 28 days early this time.

What is mildly surprising is that Bitcoin doubled without ever falling below its March 13 low. On average, it has dropped 27% between doublings (that is, if it starts from $1,000, it drops to $730 before trading above $2,000) and it has dropped as much as 83% (trading for $170 before going to $2,000).

Even that is mostly old news as volatility has steadily declined since a Covid-era peak. Annualized volatility has been 50% over the last two years, no higher than many large technology stocks. Moreover, this relative calm has occurred over a period with massive scandals, bankruptcies, prosecutions and regulatory fights in crypto.

Bitcoin's Relative Calm

Does this mean Bitcoin can be invited to the grown-up table at this year’s holiday dinner, to have its own place in standard portfolios?

For most investors the answer is still “no.” Bitcoin has more than enough appreciation potential to attract investors, and its volatility no longer seems to be a disqualification. Issues like secure custody, tax treatment and legality seem mostly solved. But its correlations with other major assets — particularly stocks, currencies and gold — have been unstable, making it hard to fit in, like a left-handed dinner guest.