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Keegan Toci shares his perspective on where crypto might fit in your portfolio
Key Takeaways
- Digital assets, such as Ethereum, could potentially become a settlement “layer” for trillions of dollars of economic activity and commerce.
- The volatility of digital assets is a risk that must be carefully managed by sizing the allocation appropriately based on an investor's objectives and investment horizon.
- Even a small portfolio allocation of 1% to 5% to digital assets could materially impact overall performance due to an asymmetric return profile and diversification benefits.
Transcript
My name is Keegan Toci. I am the chief investment officer at Combine Capital. We're an asset management company specializing in digital assets. We currently offer institutions simply managed accounts with various mandates specific to the digital asset class.
So when it comes to the investment thesis behind digital assets, there are a few important narratives in how this asset class fits into a broader portfolio. If you think about Ethereum as this platform that is a hybrid AWS or Apple App Store, you have the ability to really invest and gain exposure to this platform. That could realistically be the settlement layer for trillions of dollars of economic activity and commerce going forward.
So in thinking about the risks of allocations to digital assets within a portfolio, the topic that comes up most often is volatility. If you really appreciate the fact that this is a nascent asset class, it's a novel new technology that trades 24 seven globally, you know, with a lot of speculative activity. That's what's driving the volatile price performance. So in order to properly incorporate this volatile asset class within a portfolio, it's really about sizing the allocation appropriately, and it's dependent on the risks and objectives of the individual investor. And so, if you look at an individual's investment horizon, the longer your time horizon, the higher threshold for risk one has. But again, it's getting comfortable with the ability and the willingness to take that risk.
I start every conversation with potential clients, reminding them that a new asset class does not come to market very often. And so, while there is still quite a bit of education and understanding that market participants need to really come to terms with the potential for these networks to continue growing exponentially can result in this asymmetric return profile. And so, even a small 1 to 5% allocation within a portfolio has the ability to materially impact the overall portfolio performance. And again, you have this diversification concept, right? It's a new asset class. The correlations to traditional asset classes, equities, and fixed income is not proven over a longer term. And so you have this diversification feature of even small allocations to the digital assets within an overall balanced portfolio.
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