Modest bitcoin allocation would have boosted portfolio returns in 2019


We compared various model investment portfolios to measure returns over the past year. Of note, we compared a typical investment portfolio (Portfolio 1), which includes 60% equities and 40% bonds, and an alternative portfolio (Portfolio 2), which includes 55% equities, 35% bonds, and 10% bitcoin. Over the past one year period, the portfolio with a 10% bitcoin allocation considerably outperformed the one without.

In the figure below we visualize year-over-year performance between the two portfolios with a starting investment of $1,000. The portfolio calculation assumes yearly rebalancing at the previously mentioned percentage allocations. As shown, Portfolio 2 outperformed Portfolio 1 over the one year period, with Portfolio 2 reaching its 2019 high over the summer.

Figure 1: Portfolio comparison year-over-year

Data for chart sourced from the TradeBlock Professional Platform and Yahoo!Finance

Additionally, we analyzed Sortino and Sharpe Ratios to further determine the risk adjusted return profiles between the two portfolios. While Portfolio 2, the portfolio with a 10% bitcoin allocation, outperformed Portfolio 1, it maintained a modestly higher risk profile given the somewhat heightened volatility. Respectively, both portfolios had nearly similar Sortino Ratios–1.51 and 1.41. The Sortino Ratio does not penalize upside volatility for measuring risk adjusted returns. Earlier this year, bitcoin had higher risk adjusted returns than the S&P 500 as measured by the Sortino Ratio.

When measuring risk adjusted returns, using the more popular Sharpe Ratio, we found that Portfolio 1 maintained greater risk adjusted returns with a Sharpe of 0.66 vs. Portfolio 2 which had a Sharpe of 0.46.

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