1.6 Digital asset in portfolio construction

According to Fidelity Digital Assets, a survey revealed that 70% of global institutional investors plan to invest in digital assets within the next five years.

Figure 11. Digital asset as an asset class in portfolio construction

Characteristics How to measure

High potential return The difference between the potential appreciation in the price and the cost price

Significance

Increasing use cases and higher mainstream penetration

High liquidity The trading volume over a certain period

High volatility The standard deviations of returns

Low correlation with traditional assets The degree to which price moves are correlated with other traditional assets

Source: CFA Cryptoassets report

Easier for investors to trade with minimal price risk

High volatility limits institutional adoption

Market-specific dynamics and investor flows influence returns and correlations.

Trend over time

Digital assets have massive upside as it is still in the early stage of development, and professional investors have yet to allocate to the space.

The liquidity is expected to increase over time and can attract more investors gradually

Volatility is declining but is expected to persist in the future.

Correlations are unlikely to rise substantially, given the different return drivers, making cryptoassets a popular means of diversification.