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Taken on its own, Bitcoin\u2019s eye-popping 1,400% rally last year would put most other investments to shame. But even such a monster gain might not be enough to put the cryptocurrency on the radar for institutional investors, according to Sanford C. Bernstein.<\/p>\n
The sheer volatility, liquidity, and even environmental concern – the electricity requirements for Bitcoin mining are enormous – associated with the still-nascent cryptocurrency space means Bitcoin doesn\u2019t yet have a real role to play for asset allocators, according to Inigo Fraser-Jenkins, the brokerage\u2019s head of global quantitative and European equity strategy.<\/p>\n
Comparing Bitcoin\u2019s returns, volatility and correlations with asset classes including the US S&P 500 Index, emerging markets, high-yield debt and commodities from January 2016 to December 2017, Fraser-Jenkins found Bitcoin would need to post an average monthly return of at least 5% in future to justify a \u201cmeaningful\u201d allocation into optimized portfolios.<\/p>\n
That\u2019s just too high a hurdle, even before accounting for other risks, he said.<\/p>\n
\u201cCryptocurrencies do not have a size and liquidity that is appropriate for institutional asset allocation and the environmental, social and governance concerns of Bitcoin probably rule them out for many pension funds,\u201d the strategist said in a note to clients.<\/p>\n
\u201cAside from all these concerns, the required return of Bitcoin at 5 percent per month for it even to have a meaningful place in allocation seems too high for investors to try to overcome these other issues.\u201d<\/p>\n