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Raiz to introduce new fund with Bitcoin exposure

Posted: 21 January 2020 2:25 pm
News

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What does the addition of Bitcoin do to sensible portfolios?

Raiz has received the go-ahead from ASIC to launch a Bitcoin retail fund, which is expected to be available by June. In the new portfolio, Bitcoin will be treated as an alternative asset class. About 5% of the portfolio will be given to Bitcoin, while the remaining 95% will consist of other assets. Gemini will be acting as the fund's custodian.

What does Bitcoin do?

Raiz, formerly known as Acorns, is a micro-investment app where users can round up their spare change to invest in one of six different portfolios.

The options include five portfolios ranging from conservative to aggressive. The conservative end leans heavily towards cash, while the aggressive end of the spectrum is more about ASX-listed stocks. The sixth option is Emerald, an aggressive-leaning ethical investment portfolio.

But where would Bitcoin fit into the line-up? Does its addition make a portfolio more aggressive or more conservative?

On the one hand, Bitcoin is known for its volatility and a historical ascent punctuated by abrupt drops. Anytime you're talking about an asset class with a prospect (however close or distant) of thousand percent gains, you're probably talking about a fairly risky and aggressive investment.

On the other hand, Bitcoin is widely regarded as a safe-haven asset, more akin to cash or gold. As the theory goes, its prices will withstand whatever's thrown at it, and it remains safely insulated from the vagaries of the stock market.

Raiz itself characterises the choice between conservative or aggressive portfolios as the choice between short-term or long-term investments.

Go conservative if you have a short-term savings goal, it suggests, because that way you can hit your target more reliably. Or be more aggressive if you have long-term goals because historically everything just goes up and a longer timeframe gives you enough time to brush off the sporadic drops. In this light, the addition of cryptocurrency to a portfolio may skew it towards the aggressive as its volatility could get in the way of short-term savings goals.

Of course, the conservative-aggressive spectrum is just one way of visualising portfolios, and as an individual asset, Bitcoin doesn't necessarily have to live anywhere on the same spectrum. Performance-wise, it's definitely been defying categorisation and going off into a world of its own.

The chart below shows the last 12 months of Bitcoin (green) compared to gold (gold) and the ASX200 index (blue).

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Chart by TradingView

Regardless of whether its prices are going up or sideways, Bitcoin's lack of correlation with other assets is beneficial in itself, because it means adding Bitcoin to a portfolio will always improve diversification.

Opinion: An uncommon turn of events

A Bitcoin allocation in a Raiz portfolio may not be the herald of mass adoption that Bitcoin enthusiasts have tended to look for, and it's certainly not very in keeping with the ideals of being your own bank.

It's certainly not a numerically huge deal either. Based on Raiz's most recent filings, one-seventh of its existing users opting for the new Bitcoin portfolio would translate into about 30,000 people with a small Bitcoin allocation in their portfolio. The average Raiz account looks to be about AUD$2,000, so the 5% Bitcoin allocation would average out to some AUD$100 per user. All up, it would roughly and theoretically add up to a new US$2 million Bitcoin fund somewhere.

That said, this is still an excellent and surprisingly uncommon example of Bitcoin standing on its own two feet as an asset class.

Every fund that touched Bitcoin in 2017 and 2018 kept reiterating that they were only doing it to satisfy consumer demand. Very few of them said they were doing it because they felt like Bitcoin's historical performance and characteristics as an asset made it a solid addition to a sensible long-term portfolio.

But that's exactly what we're getting here.

And while Australian cryptocurrency micro-investment apps that round up your change into Bitcoin are fairly numerous (examples from Australia alone include Amber, Bamboo, Chillur and presumably 23 more for every other letter of the alphabet), Raiz might be one of the only ones to offer Bitcoin as a slice of holistic investment portfolios rather than a new twist on simply buying Bitcoin.



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Disclosure: The author holds BNB and BTC and the contents of a Raiz account (Emerald, if you're wondering) at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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