Decrypting Bitcoin - Why the digital currency should be part of a balanced portfolio
- Sep 9, 2020
- 6 min read
Updated: Mar 20
When the Banking System Fails: A Real-World Case for Bitcoin
Last September, a client’s wire amounting to almost US$1 million was being directed from a Canadian chartered bank to the private-equity division of a large global asset manager in Europe. As bad luck would have it, it was two days after a US$3-trillion repo market spike, which caused overnight rates to quintuple to 10% on Sept. 17 from 2% the day before. What ensued was a 29-day odyssey. The French bank initially held our client’s wire for the apparent reason that it needed more information due to anti-money laundering purposes. This information was provided in less than three days. For the next 26 days, all sorts of delays were endured, with the French bank giving incoherent reasons for them. Fortunately, the U.S. Federal Reserve injected more than US$400 billion into the repo market to reduce the volatility of these short-term interest rates.
The repo market has since calmed down, with the Fed and other central banks continuing to inject significant sums of money into this market in order to maintain stability. Many market observers gathered that banks had suffered a liquidity squeeze and needed to sit on client funds to improve their working capital ratios for the regulators. During my correspondence with the French bank and its counterparts, I kept mentioning that if we had used bitcoin to transfer this client’s money, the transaction would have been completed in less than an hour at a fraction of the cost. The banks didn’t appreciate such candidness, but bitcoin is censorship proof and does not rely on banks directly nor the Swift international payment network (one of the world’s largest financial messaging systems).
This brings me back to a bold call I made in these pages last June that suggested bitcoin be considered a new asset class and that some exposure should be considered as a component of a balanced portfolio. At the time of writing, bitcoin was trading at US$5,000 and it soon ran up to almost US$13,000. Bitcoin pulled back to around US$6,000, but still ended the year as the best-performing asset class globally by gaining 90%.
Understanding Bitcoin’s Value: Monetary Value vs. Intrinsic Value
Despite bitcoin’s headline-worthy returns and volatility, many investors still don’t understand it, especially when it comes to valuing it. Many in the financial industry, including Warren Buffett, focus on intrinsic value: an economic good produces cash flow or has overt utility such as stocks, bonds, real estate and consumable commodities. But bitcoin has monetary value, which exists despite an economic good not having intrinsic value. Monetary value usually arises from objects that are scarce, durable and relatively easy to divide. Since the dawn of civilization, societies have used rare seashells, wampum, glass beads and stones as money or a form of record keeping. Gold is an ideal example since it can be made into jewelry, coins and bars, but bitcoin is unique in today’s digital world since it is scarce, durable, has strong privacy characteristics and is a bearer asset.
The Institutional Infrastructure Build-Out: Who Is Investing in Bitcoin?
As of early March, bitcoin was up more than 23% in 2020, dwarfing the small loss by the S&P 500, but there’s more to the story than just returns. Over the past year, there has been an explosion of market-ready institutional custody and investment solutions. For example, the Intercontinental Exchange Inc., owners of the New York Stock Exchange, created Bakkt, a futures and clearing marketplace for digital assets that also offers secure storage. Toronto-Dominion Bank is an investor in ErisX, a regulated exchange for cryptocurrency spot contracts and futures trading that is being offered to TD Ameritrade’s U.S. client base. State Street Corp., one of the world’s largest custodians, has teamed up with Gemini Trust Co. LLC (founded by the Winklevoss Twins of Facebook fame) to offer trading and custodial solutions for digital assets.
Elsewhere, Fidelity Digital Assets, a subsidiary of the namesake giant U.S.-based asset manager that oversees US$2.7 trillion in assets, is offering a trading and custody platform for bitcoin. It has also had bitcoin mining operations since 2014, and the Fidelity Center for Applied Technology is a customer of Victoria-based Blockstream Corp., which mines bitcoin in Quebec and Georgia. Not to be outdone, Microsoft Corp. is taking advantage of the Bitcoin system’s trust-minimized features and security and building a decentralized identity platform aptly named Identity Overlay Network (ION).
In addition, billionaires, including PayPal Holdings Inc. founder Peter Thiel, are investing in and mining bitcoin.
Jack Dorsey, the founder of Twitter Inc., is using a secondary layer to Bitcoin called Lightning, which lowers costs and increases speeds for his payment company Square Inc. Last, but not least, even legendary speculator George Soros is investing in or, shall I say, trading this asset class for his family office.
The Diversification Case: Yale Research on Optimal Bitcoin Allocation
What do these companies and sophisticated investors know that many do not yet? Research from Yale University showed that a 1% allocation to bitcoin improved a balanced portfolio’s return versus volatility, and that a 6% exposure created the optimal portfolio with regard to return versus risk. The reason: the low correlation of bitcoin returns compared to traditional asset classes such as stocks, bonds, bills and real estate. Put another way, it’s the diversification effect.
Editor’s Note: What Happened After This Article Was Published
March 20, 2026
Arthur Salzer wrote this column for Financial Post Magazine in early 2020, when bitcoin was trading near US$5,000. The thesis was straightforward: bitcoin’s scarcity, low correlation to traditional assets, and rapidly maturing institutional infrastructure made it a legitimate portfolio diversifier, and the Yale research supported an optimal allocation of 1–6% in a balanced portfolio. At the time, recommending bitcoin allocation in a national magazine column was an uncommon position for a Canadian portfolio manager to take publicly.
In the five years since publication, the thesis has been validated at every level Salzer identified. Bitcoin reached approximately US$69,000 in November 2021, pulled back to roughly $16,000 in late 2022 during the FTX collapse, and subsequently recovered to surpass $100,000 in late 2024. Northland’s rebalancing discipline (described in detail on The Artisan Podcast) meant that clients who entered at the levels prevailing when this column was written and systematically trimmed on rallies and added on drawdowns captured the structural return while managing the ultra-cyclical volatility Salzer consistently warned about.
Institutional Adoption: From Early Movers to Mainstream
The institutional infrastructure companies Salzer highlighted in 2020 were early signals of what became a full-scale institutional adoption wave. Several have since been acquired or evolved. ErisX was purchased by Cboe Global Markets in 2022, bringing regulated crypto derivatives onto one of the world’s largest exchange platforms. TD Ameritrade merged into Charles Schwab. Fidelity Digital Assets expanded from custody into a full-service institutional platform and launched the Fidelity Wise Origin Bitcoin Fund.
The most significant development, which Salzer’s article anticipated but could not have predicted the timing of, was the SEC’s approval of spot bitcoin ETFs in January 2024. BlackRock, Fidelity, Invesco, and a dozen other major asset managers launched bitcoin ETFs that collectively attracted over $50 billion in net inflows within their first year. This resolved the access and custody barrier that had kept many institutional and retail investors on the sidelines. For Canadian investors, bitcoin ETFs had been available since February 2021 through Purpose Investments’ launch on the TSX, giving Canada a two-year head start over the United States.
The trajectory from Salzer’s 2020 column to today traces the path he described: institutional custody solutions built credibility, institutional capital followed, and the asset class transitioned from a speculative curiosity to a recognized portfolio component. The billionaire investors he named (Peter Thiel, Jack Dorsey, George Soros) have been joined by sovereign wealth funds, public pension allocators, and the largest asset managers on earth.
The Diversification Thesis Has Held Up
The Yale research Salzer cited remains the foundational academic work on bitcoin portfolio allocation. The core finding (that bitcoin’s low correlation to stocks, bonds, and real estate creates a diversification benefit that improves risk-adjusted returns even at small allocations) has been confirmed by subsequent studies and by real-world portfolio performance data. A 5% bitcoin allocation in a balanced 60/40 portfolio over the five years since this article was published would have meaningfully improved the portfolio’s total return and Sharpe ratio, even accounting for bitcoin’s drawdowns in 2022.
For UHNW families, the practical implication is unchanged from what Salzer wrote in 2020: bitcoin is not a replacement for a diversified portfolio. It is a component of one. The allocation should be sized conservatively (1–5%), rebalanced systematically, and held with the understanding that short-term volatility of 50% or more is a structural feature of the asset class, not a sign of failure. Families who treat bitcoin as a speculative bet tend to buy high and sell low. Families who treat it as a disciplined, rebalanced allocation tend to capture the long-term structural return that Salzer identified.
About the Author
Arthur C. Salzer, CFA, CIM is the Founder and CEO of Northland Wealth Management Inc., an independent multi-family office registered with the Ontario Securities Commission as a Portfolio Manager. Northland was among the first Canadian multi-family offices to allocate to bitcoin, beginning in 2019. Salzer has been recognized as the Top Ranked Advisor in Canada by Wealth Professional Magazine and has led Northland to three Best Multi-Family Office in Canada awards at the Family Wealth Report Awards. He writes the Curve Appeal column in Financial Post Magazine.
This article originally appeared in the April 2020 edition of Financial Post Magazine.
