Is Bitcoin Alone Enough to Make a Good Investment?
Own Gold, Oil, Bitcoin, the 3 Most Vital Assets on this Planet in One Wallet
Is bitcoin alone enough to make a good investment? Probably not. Adding other traditional financial assets could balance the risk and stabilize the overall return.
It is true that most bitcoiners may despise fiat currencies because fiat currencies are in the mud pools of inflation or manipulation and are beyond rescue. However, gold and oil are still worth consideration.
What’s the benefit of holding bitcoin with gold and oil in one portfolio? Let’s make a deep dive into this topic today.
In recent years, the global financial markets have undergone a variety of uncertainties ranging from the COVID pandemic to the Russia-Ukraine crisis. Three assets are still standing on the battlefield of capital.
Bitcoin has attracted tremendous attention from global investors for its superior returns which dwarfed all other assets. In the past decade, Bitcoin offered a Compound Annualized Growth Rate (CAGR) of 150%. And it has performed well during various risk-off environments and is referred to as the “Digital Gold”. But in the meantime, its volatility has remained elevated, deterring potential investors away, with the max drawdown being 85% since 2017, meaning someone could have lost 85% of his/her investment in just one swing, which could be a red flag.
Gold, one of the rarest elements in the world, the shiny metal, the anchor of value, and the traditional safe-haven asset, has also performed strongly in recent years mainly due to its super strong resistance to bearish conditions. The only drawback seems to be the return.
We’ve also witnessed historical moments of crude oil or the “Black gold”. Not only have we witnessed its plunge to the negative territory in 2020, but we also saw its rally to above US$100/bbl in Q1 2022. Referred to as the “King of Commodities”, crude oil drives the world and benefits from economic booming cycles. But when uncertainties cloud economic outlooks, it suffers.
While each of the three assets has its special strong points, they are subject to their own deficiencies as well. In the hope to make a “perfect” investment portfolio, we’ve tested the hypothesis of combining the three assets into one index. Supposedly this index could possess Bitcoin’s remarkable return-generation ability (10%), gold’s safe-haven nature (45%), as well as crude oil’s pro-cyclical dynamics (45%). And here is what we got: a 3-in-1 index and its performance in the past 5 years.
As shown in the table, the “3-in-1” index has：
- Much lower volatility than the Bitcoin, close to crude oil;
- A lower maximum drawdown than Bitcoin and crude oil;
- A substantially higher return than gold and oil.
By combining these three key assets, the portfolio holder is able to defend him/herself from uncertainties and preserve value (gold and bitcoin), benefit from economic growth (crude oil and bitcoin), and invest in the future (bitcoin).
To test our hypothesis, let’s take Q1 2020 as an example of when the COVID-19 outbreak quaked the global financial markets. During that quarter, crude oil plunged 45%, bitcoin fell sharply (over 30% at its worst) and gold barely held steady. Looking at our 3-in-1 portfolio, the loss was controlled at around 20%. That drawdown is not bad at all in front of a global pandemic.
In the end, this is just a brief calculation to test the hypothesis and it proves that it is better to hold three assets instead of just one in the portfolio. The weights of each asset can vary depending on macroeconomic changes. For instance, we can add the weight of crude oil when the world’s economy is booming and decrease the weight of gold, and vice versa. This way, we can achieve a dynamic balance between risk and return which adapts to all economic scenarios.
DeFi 3.0 synthetic asset project Duet Protocol recently listed dXAU (gold) and dWTI (oil) on its platform. With the BTCB (bitcoin) that already exists on the platform, users can get hold of gold, oil, and bitcoin with only a few clicks, making it possible to build a portfolio that contains traditional assets and crypto assets with just one crypto wallet.
The three synthetic assets are minted through over-collateralization, with high-quality yield-bearing assets backed. Leverage can be at most 10 times. Liquidity can be amplified through highly united and tightly connected market maker channels created by Duet Protocol, which is more advanced than the single market’s fragmented liquidity, often seen in the traditional financial markets like CME or LSE.
For more details, please go to: https://duet.finance/. Duet protocol is a multi-chain synthetic assets ecosystem, minting various pegging assets from stock, index, ETF, commodities, or any assets with a price feed on the blockchain. Duet aims to allow all Web3 residents to allocate funds to any asset with just one crypto wallet. More progress is being made.
Stay tuned for the most timely updates. https://linktr.ee/duetprotocol
