Cryptocurrencies are extremely volatile – Bitcoin hit an all-time of more than $63,000 per coin on April 15, 2021, before falling by nearly 45% to a level of around $35,000 just over a month later.

However, this is just one example of how quickly things can change in the crypto market; as shown on this slide, it is not clear whether Bitcoin is a risky or defensive asset.

Because correlations between cryptocurrencies like Bitcoin and traditional assets like stocks and bonds are incredibly unstable, it difficult to predict whether they will “zig” or “zag” during periods of stock or bond market stress. Furthermore, this makes it increasingly difficult to come up with an idea allocation using a mean-variance framework.