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Cryptocurrency Q&A: A Boom Or Bust?

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  • Institutional portfolios and publicly listed companies have started adding bitcoin to their asset mix like they do with gold.
  • There are lots of conversations around stablecoins and how money market instruments will be reformed, and we should probably keep an eye on them.
  • Correlations have increased pretty significantly in 2020 from 0.1 to 0.3 to major asset classes, including gold, too. I don't think a discernible dollar correlation is worthwhile to note.

Cryptocurrency continues to make headlines with bitcoin and ethereum leading the way. Reaching record highs recently, bitcoin, in particular, has attracted the attention of the investment community. Will cryptocurrency maintain the same level of interest that was seen towards the end of 2020 and now into 2021? In this in-depth Q&A, Gabor Gurbacs, Director of Digital Assets Strategy, will discuss the digital asset landscape and its future.

Q: How do you see bitcoin and other digital assets impacting financial services at the institutional level?

A: Digital assets have primarily been a retail play. This was a situation where Main Street beat Wall Street, and now Wall Street is playing catch up. There are two ways I see bitcoin in institutional spaces. First, institutions are looking to add bitcoin to their portfolios. Our Investment Case for Bitcoin explores how a 1%-3% allocation to bitcoin may benefit institutional portfolios. Sure enough, we found that bitcoin has a low correlation to traditional asset classes. It has outperformed most assets over the past 10 years and actually increased and improved the risk-reward profile of institutional portfolios. Institutional portfolios and publicly listed companies have started adding bitcoin to their asset mix like they do with gold. We have seen MicroStrategy (MSTR), the Marathon Patent Group and some other decently sized institutions on the public side adding bitcoin to their portfolios. We hear from family offices, endowments and institutions like Harvard, Yale, and others that they are adding bitcoin to their portfolios, so that's obviously one clear trend.

The second way I think bitcoin has the potential to improve the mainstream financial infrastructure is just the pathways of the transactions with 42 million clients. There are some functions that bitcoin has introduced that may help prove that financial infrastructure. It is providing faster settlements, an alternative railway for trading, and

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