Today’s crypto and the modern portfolio.
New asset classes are rare and powerful because they are catalyst rich and offer a unique return stream that can provide an outperformance compared to the existing asset classes and a diversification benefit.
The birth of a new asset class isn’t something that happens every decade or even every 100 years. But in 2008, through a combination of computer science, cryptography, economics, and network theory, crypto-assets were born out of a financial crisis. Ever since then, crypto-assets have proved they are an asset class unlike any other.
As they decentralized global financial infrastructures and monetary theories, At ComiBlock, we believe there is a compelling case for investors to allocate some portion of their portfolio to this new asset class.
Crypto-assets have proven to be one of the most exciting investments opportunities of the 21st century.
Crypto assets today combine two characteristics rarely found together in other asset classes: Exceptional top-line growth with very high levels of profitability.
Consistent with the Modern Portfolio Theory, we still subscribe to the general opinion that an optimal return-to-risk ratio for a portfolio can be found on an efficient frontier.
Contrary to popular wisdom, we believe many asset allocators are missing out on a “free lunch”; As Cliff Asness, Managing Principal and CIO of AQR Capital Management puts it, “diversification is the one free lunch of investing, and when you see a free lunch, the only rational thing to do is eat” Because crypto-assets represent a brand-new investment opportunity uncorrelated to other asset classes, many investors are generally under-allocated to this market.
With a market capitalization above $2 trillion, we believe that an optimal beta portfolio extends higher than the common opinion of an efficient frontier. We strongly believe that crypto-assets are “the missing part of the riddle” when building an optimal portfolio.
The Free lunch
Crypto-assets are not a revolution against monetary policies or a struggle between the central bankers and the rest of us. We believe it’s a natural progression from the invention of the printing press, the light bulb, the internet, and then a secure database that demonstrated the power of decentralized systems, surviving and thriving with no single point of failure in both a permissionless and censorship-resistant manner.
The rapid growth in the adoption and development of second-generation blockchain protocols is now expanding the capabilities of this technology by modifying Bitcoin’s social, economic, and technological constructs to satisfy different needs. These have informed a new way to describe assets that operate these protocols — this is now beyond what Satoshi invented; digital commodities and tokens now fall into the broader category of crypto-assets.
The crypto ecosystem to many is just digital currencies that are traded on exchanges, or just too broad for some. At, ComiBlock we see the market through a focused and simplified lens.
Digital Property: Bitcoin.
Store of Value as a service. Optimized for integrity and durability, with limited supply, high portability, and is programmable, and serves as a reserve currency.
Digital Platforms: Ethereum, Solana, Polkadot, etc.
Platform as a service. Decentralized operating systems, that fuel decentralized applications (DApps) that can execute autonomous, condition-based payments and other use cases using smart contracts.
Digital Currencies: Tether, USDC, DAI, etc.
The payment as a service. Seek to fulfill the role of a global medium of-exchange
Decentralized Applications: Uniswap, Sushiswap, etc.
Digital Ledger as a service. Decentralizing traditional financial and centralized institutions through bank-like services like lending, insurance and money markets, etc.
All underpins the economic and cryptography principles of Bitcoin combined with the smart contract capabilities of different Blockchain protocols to serve a different niche.
Also, crypto-assets are catalyst rich and at the intersection of some of the most significant trends reshaping the global economy, including:
- A new market paradigm propelled by record-high inflation, high debt burdens, weak monetary policies, low-yielding assets, and an ever-widening wealth gap.
- Evolution of fintechs and payment infrastructures, making it possible to move and clear assets at the same speed as information at a fraction of the initial cost.
- Demographic transformations, driven by digital-savvy Millenials and Gen-z’s entering their prime earning years and looking for future-proof investment opportunities.
- Baby Boomers entering retirement and divesting from equity and bond portfolios, and a generational wealth transfer of $68 trillion over the next 25 years.
- Regulatory shifts, altering financial industry economics and significantly increasing the cost of compliance.
After studying the relationship, some crypto assets have with traditional assets and looking at each other through a correlation matrix constructed from rolling 30-day returns over the last five years.
We recognized that the correlations of rolling 30-day returns range from negative to slightly positive, with an average of nearly zero. Providing the evidence that crypto-assets can be considered a diversifying component in multi-asset portfolios. However, many crypto-assets are imperfectly correlated, presenting diversification benefits within the asset class itself.
To further our understanding of these benefits, we conducted a series of portfolio simulations to assess how an allocation to an equal-weighted mix of select crypto-assets might have impacted the return-to-risk profile of a 60/40 portfolio of global equities and bonds.
We found that portfolios with allocation to crypto-assets performed even better than the 60/40 equity and Bonds on both an absolute and risk-adjusted basis.
Adding a 5% digital asset allocation to the Global 60/40 increased annual returns by 582 basis points, increased volatility by 60 basis points, and improved the return-to-risk ratio by 95%.
Since crypto-assets are uncorrelated with traditional assets and imperfectly correlated with one another. We believe a combined portfolio of equity, bonds, and crypto-assets presents higher risk-adjusted returns and with two characteristics rarely found together: Exceptional top-line growth with very high levels of profitability.
At ComiBlock, we are big believers and investors in crypto-assets because we perfectly understand their high unique set of properties, and distinct return stream, which allows them to play a diversifying role in investor portfolios. And we are making it possible for investors to allocate some portion of their portfolio to this new asset class alongside other assets classes. A lot will happen over the next few years but remember: diversification is a “free lunch” and asset allocation is all about the long game.
Come join us and build the future of wealth management
As crypto continue to grow. At ComiBlock we are building the world’s most human crypto company at the intersection of wealth management, with a single mission to help millennials and Gen-Z’s simplify their investment life.