Balmoral Digital

Introducing the digital asset class

Welcome to Balmoral Digital. We are pioneering partners along the journey into new wealth and income creation.

Digital assets are an incredible opportunity for investors. This asset class is unique, new to most Australians, and deserving of a proper introduction.

Below we will look at some introductory analysis of the two most liquid digital assets – Bitcoin and Ethereum – and provide some thoughts around how rational investors, who seek optimal return for their risk, should view these assets.

Liquidity

Investors love liquidity for obvious reasons. The first point to note is digital assets offer deep and liquid markets. At the time of writing on 14 February 2022 the market capitalisation of Bitcoin was US $804,250,326,447 and the 24 hour volume in perpetual Bitcoin futures was 45,389 BTC via FTX exchange, which aligns with our observations over the last few months. Even if you wanted to remain under 10% of FTX volumes you could hedge US $192m of Bitcoin per day, which is ample liquidity for almost any investor.

Correlated with Equity

Looking at the 70 months from April 2016 to January 2022 the correlations between Bitcoin, Ethereum and several major equity indices are below.

Bitcoin has a strong positive 0.93 correlation to MSCI World Index and nearly as strong 0.91 correlation with Nasdaq. This means when equities have done well Bitcoin has done well, and vice versa.

Similar results occur across digital assets: for example over 18 months to January 2022 Solana has 0.77 correlation with the MSCI World Index.

Supercharged expected returns and expected risk

Supercharged Expected Return and Risk

Our estimate of Bitcoin’s beta to the MSCI World Index is over 5, which means translates into each dollar invested in Bitcoin being akin to many dollars invested into equity. As the table above illustrates a bad outcome from shares means your investments are down 7-8% in a month; in digital assets a bad month means you can be down 40-75%.

Key Takeaways

Key takeaways are that digital assets are a new asset class offering very strong returns with high levels of volatility. Their short history suggests a high degree of correlation with equity returns.

For investors then key with digital assets is actively managing that volatility whilst tapping into the very strong returns available.

Introduction to Balmoral Digital

Balmoral’s Digital Asset Fund has just been opened to wholesale investors with a soft close US $100m capacity to ensure it will remain nimble and be able to generate strong returns for its investors.

The Fund will benchmark off 10% compound annual growth and remain close to delta neutral, meaning price movements in digital assets like Bitcoin will not substantially impact the Fund’s return generation. With this combination we will be tapping into the great returns available while also tightly managing the famous volatility that ordinarily comes with this asset class. We expect the Fund will be uncorrelated with equity or directly held digital assets and so a true diversifier for portfolio construction.

To explore this new asset class sensibly I invite you to contact us at investor@balmoral.digital. If the opportunity suits you then lets get this done, together.

Angus

Co-Founder, Balmoral Digital