Institutional Adoption of Crypto:
Bridging the Gap Between Digital and Traditional Finance
Amdax and Bolder Group are jointly bridging the gap between crypto and the traditional financial world. In a joint whitepaper, they present the historical performance, correlations, and risk-return profiles of adding crypto assets to a traditional 60/40 portfolio during the period from January 1, 2018, to February 1, 2025.
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Introduction
The adoption of cryptocurrencies has followed an unconventional path. Unlike traditional asset classes, which typically gain institutional support first, cryptocurrencies were initially adopted by retail investors and crypto-native communities. Institutions have been held back by challenges such as regulatory uncertainty, market volatility and the lack of proven custodial infrastructure. Additionally, cryptocurrencies often fall outside traditional risk management frameworks, making them difficult to integrate into institutional portfolios. Meanwhile, retail investors, with direct access to exchanges and wallets, led the way in adopting these transformative assets.
Enhancing Traditional Portfolios with Cryptocurrencies
In recent years, the growing prominence of cryptocurrencies has transformed them from a niche asset class into a viable option for institutional portfolios. While bitcoin and ether, two of the largest cryptocurrencies, have demonstrated substantial volatility and steep drawdowns, their potential for strong risk-adjusted returns has attracted increasing attention from investors. As institutional interest has grown, so has the development of infrastructure to support cryptocurrency investments, making the consideration of crypto exposure increasingly relevant for investment officers.
Once the decision to invest is made, the key question shifts to determining the appropriate level of exposure. This article demonstrates the effect of adding cryptocurrency exposure to a traditional US 60/40 portfolio over the period from January 1, 2018, to February 1, 2025. The analysis begins in 2018 because, before this period, significant institutional allocations to cryptocurrencies were impractical due to the market’s early stage and the absence of adequate infrastructure. Furthermore, the chosen start date aligns with the beginning of a major bear market, offering a more realistic assessment, as most investors do not typically enter a market at its lowest point. While this may result in less favourable outcomes, it provides a more accurate depiction of the challenges faced by investors venturing into the Crypto. While we used US stocks and bonds in this research for our 60/40 portfolio, results are similar when using global stocks and bonds.
Constructing the portfolios
For this analysis, we employ a U.S. 60/40 portfolio as our benchmark, utilizing readily available Exchange-Traded Funds (ETFs) as proxies. Specifically, we allocate 60% to the SPDR S&P 500 ETF (SPY) and 40% to the U.S. Aggregate Bond ETF (AGG). Our performance calculations incorporate the total returns of these ETFs, accounting for dividends. To assess the impact of including crypto into this portfolio, we modify the benchmark portfolio by allocating 5% to a cryptocurrency component.
This crypto exposure comprises 60% bitcoin, the first and largest cryptocurrency by market capitalization, and 40% ether, which has emerged as the second largest and most widely utilized cryptocurrency since its inception in 2015. Figure 1 shows the wealth evolution of the stocks and bonds that we consider, as well as bitcoin and ether over the analysed period. Here we can clearly see the high volatility as well as the substantial potential for gains for bitcoin and ether compared
Want to learn more?
Download our free white paper for a detailed analysis of the institutional adoption of crypto. In this paper, we provide a framework for incorporating bitcoin and ether into traditional portfolios. By analyzing historical performance, correlation metrics, and risk-reward scenarios, we offer insights into how cryptocurrencies can enhance portfolio performance through improved diversification and higher expected returns.
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