How to Create a Digital Asset Portfolio

Digital assets are an exciting new asset class without consensus on how they should be treated. We discuss various assets available to investors and consider how portfolios may be constructed in sound ways.

Introduction

The new asset class "digital assets", which includes Bitcoin and Ethereum, is one of the most exciting and fundamental developments in global financial markets since centralised electronic marketplaces. In fact, we will argue that they could be the greatest synergistic force in history, developed just in time to be ready for unprecedented monetary and fiscal interventions in the year 2020 and beyond.

As an asset class, digital assets began with Bitcoin, which we cover here as an investment asset, discussing its investment characteristics. Bitcoin is the place to start for investors who are interested in this new asset class. In Bitcoin: A Revolutionary Investment we argue that understanding the philosophical underpinnings and the potential for a cultural impact is just as important as understanding the investment characteristics.

Readers who are familiar with Bitcoin will take the strength and power of the technology for granted. Bitcoin has been worth over $100 billion USD for a long time now, facing many adversaries who have challenged it technically, functionally and philosophically. Bitcoin has proven itself as anti-fragile, becoming stronger after each challenge.

The possibility of other digital assets had been suggested early in Bitcoin's development. Smart contracts, found in Ethereum as well as other de-centralisation platforms such as Polkadot, Cardano and Algorand suggest an enormous universe of functionality, all of which is fascinating in its potential.

However it is in finance and financial markets functions that are most fascinating and promising for digital assets, especially in the current environment of moral hazard and hubris in official policy.