A. In terms of correlation, volatile assets like cryptocurrencies are very important in lowering overall portfolio volatility. Lowering overall portfolio volatility is important because it helps smooth investment returns over time. This is important for many reasons. For example, investors may have significant and unpredictable liquidity needs. If you hold a portfolio of highly correlated assets and returns on those assets are sluggish, you will pull a larger percentage out of your portfolio compared to a portfolio that includes less correlated assets. In this regard, cryptocurrencies with low correlation to traditional assets can help. Their volatility has historically been positively biased, so even when they fluctuate wildly, they can provide stability to your portfolio when all other assets are falling. Smoothing returns is also helpful from a cognitive standpoint for most investors. Looking at portfolio performance can be overly emotional. There are instinctive effects, such as big price fluctuations making people want to buy more (usually just before a drop) while big price fluctuations discourage people and cause them to pull their money (just before performance recovers). Including at least small amounts of (low-correlated) cryptocurrencies in a portfolio will smooth out portfolio returns so that gains or losses are more modest by the time an investor checks in. This will reduce the need for a portfolio to be visible or conscious, generally increasing the likelihood of long-term success. Cryptocurrencies are volatile, but they should not be viewed in isolation but in the context of how they can help create a truly diversified portfolio that can aid in long-term wealth creation for investors.
