- Bloomberg Intelligence analyst and Chartered Market Technician (CMT) Jamie Coutts shared his views on changing areas of financial asset volatility.
- Coutts’ comparative analysis shows that since 2020, the volatility profiles of Bitcoin
and Gold have decreased, while the volatility of most other assets has increased. - In the 2022 bear market, Bitcoin’s Sortino ratio of -1.78 places it ahead of global equities, NASDAQ 100, and the traditional 60:40 portfolio.
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Chartered Market Technician (CMT) Jamie Coutts emphasized the importance of Bitcoin by conducting volatility analyses of financial assets.
Declining Interest in Bonds Could Benefit Bitcoin
In a comprehensive assessment of global market dynamics, Bloomberg Intelligence analyst and Chartered Market Technician (CMT) Jamie Coutts shared his views on changing areas of financial asset volatility. With bonds potentially falling out of favor and Bitcoin solidifying its position as a hedge against declining value, traditional portfolio models could be on the brink of a rebirth.
Coutts said, “Given where investments, returns, USD, and global M2 may be going, it appears that we may start to see a significant increase in volatility across all markets. Regardless, there’s been a big shift in the volatility profiles of global assets in recent years, with bitcoin at the center of it.”
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Coutts’ comparative analysis shows that since 2020, the volatility profiles of Bitcoin and Gold have decreased, while the volatility of most other assets has increased. According to his explanation, the volatility of the traditional 60/40 portfolio increased by 90%, NASDAQ’s volatility increased by 53%, and global stock volatility increased by 33%. Meanwhile, only Bitcoin’s volatility decreased by 52%, and Gold’s volatility decreased by 6%.
Coutts further explained that following the “hyper-volatile” stage of Bitcoin in the 2011-14 period, the cryptocurrency’s volatility has been on a downward trend. This measurement, which reached over 120 in early 2018 and is now at 26.39, demonstrates the significant shift.
However, Coutts is skeptical about the short-term outlook for Bitcoin due to the worsening macro environment: “BTC volatility near the bottom of the range and a deteriorating macro backdrop: US dollar (DXY) rising, 10-year Treasury yield rising, global M2 money supply rising. How can BTC (and all risk assets) stand up in this setup is the question.”
Global Asset Classes Against BTC
In terms of asset allocation, Coutts is pondering whether Bitcoin can “add value as a risk diversifier and improve risk-adjusted returns.” When comparing risk-adjusted returns in the recent bear market, Bitcoin didn’t perform the best.
In the 2022 bear market, Bitcoin’s Sortino ratio of -1.78 places it ahead of global equities, NASDAQ 100, and the traditional 60:40 portfolio. However, it lags behind S&P 500 (-1.46), European Stocks (-1.01), Gold (+0.1), Silver (+0.28), and commodities.
Providing more insight into Bitcoin’s cyclical behavior, Coutts stated, “The problem with BTC is that the relatively short history makes inferences difficult, and 1-year periods are definitely not meaningful. The best place to go is multiple cycles. Holding for the full cycle has been a winning strategy.”
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Coutts found that over the past three Bitcoin cycles (2013-2022), Bitcoin outperformed with a 2.46 ratio, ahead of NASDAQ 100 (+1.37), S&P 500 (+1.25), and global equities (+1.05).
In this scenario, concerns about weakening further enhance Bitcoin’s appeal. Coutts emphasized this point, saying, “And allocators point to the huge divergence between asset returns regarding money supply growth (M2). Bitcoin leads here with a stunning ratio of 8,598%, followed by NASDAQ (+109), S&P 500 (+25), and global equities (-7.5).”
In conclusion, Coutts suggests, “In the coming years, allocators might start shifting toward better inflation hedges. BTC is a clear option.” He also suggests that Bitcoin could displace bonds by securing at least 1% of the traditional 60/40 portfolio.
