Fabian Dori, Head of Investments at Sygnum Bank, leading the team responsible for developing Sygnum’s institutional investment strategies and growing portfolio of passive and active asset management products.
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For decades, institutional portfolio construction rested on the assumption that US Treasuries represent the global risk-free rate, but this assumption should now be questioned as sovereign risk becomes tangible, real yields partially turn negative, and alternative yield-generating assets mature. Among these alternatives, Bitcoin in particular has proven promising as a yield-generating instrument as well as a store of value that has appreciated over time, and institutions should take note of this in their portfolio construction.
The Evolution of Risk-Free Assets
The concept of a "risk-free" asset has always been more theoretical than practical. US Treasuries earned this designation through a unique combination of factors: the strength of the American economy, deep market liquidity, and the dollar's role as the global reserve currency. But, recent developments challenge this framework.
Credit rating downgrades, recurring debt ceiling debates, and persistent fiscal deficits have brought new sovereign risk considerations that were once unthinkable. Meanwhile, when adjusted for full monetary debasement, real Treasury yields often remain negative. The traditional 60/40 portfolio construction model worked effectively in an environment of stable monetary policy and credible fiat currencies. That environment no longer exists.
Bitcoin Has Matured into Productive Capital
Bitcoin's journey from experimental technology to institutional asset has been remarkable, but its recent evolution into yield-generating collateral marks a completely new chapter. This transformation addresses one of the primary critiques of Bitcoin as an institutional holding: that unlike bonds or equities, it generated no income.
Through regulated lending platforms and arbitrage strategies, institutions can now generate yields on Bitcoin holdings while maintaining exposure to the underlying asset. This development transforms Bitcoin from purely a store of value (akin to gold) into productive capital that can contribute to portfolio returns through multiple channels.
Unlike gold, which requires physical storage and generates costs rather than income, Bitcoin can now serve as collateral in various yield-generating strategies. Over-collateralized lending and funding rate arbitrage allows institutions to earn returns that often exceed traditional fixed-income benchmarks while maintaining Bitcoin exposure.
A Broadening Institutional Adoption Framework
The institutional adoption of Bitcoin is not monolithic, and its demand structure continues to shift. Different investor types are drawn to Bitcoin for distinct reasons. Store of value considerations initially drove institutional interest, particularly as concerns about monetary debasement and inflation protection grew, and arguments for this remain convincing, especially for long-term allocators seeking alternatives to traditional inflation hedges.
Bitcoin’s increasing recognition as productive collateral has naturally attracted a different segment: risk-tolerant investors seeking enhanced returns. These investors view Bitcoin's volatility as an opportunity due to the potential for significant price appreciation combined with yield strategies that can generate attractive risk-adjusted returns.
Most recently, the development of USD delta-neutral yield strategies collateralized by Bitcoin has opened the door to an entirely new class of investor. Market-neutral and cash-management-oriented investors, who previously avoided Bitcoin due to its volatility, can now access attractive yields while hedging price risk. Institutional treasurers and conservative allocators, take note. Bitcoin can offer capital preservation alongside yield generation.
The Foundation for Yield
None of this would be possible without the maturation of market infrastructure. Regulated custody solutions such as those provided by established banks and dedicated digital asset custodians, institutional-grade trading platforms with deep liquidity and 24/7 operations, and comprehensive reporting frameworks that integrate with traditional portfolio management systems have removed many of the operational barriers that, in the early days of digital currencies, prevented institutional participation.
The regulatory clarity emerging in major financial centers provides the legal certainty institutions require. Combined with the development of traditional financial products like ETFs and structured products with Bitcoin exposure, the requisite access points now exist for institutions to benefit from Bitcoin yield strategies within their existing operational frameworks.
Where Bitcoin Fits in Institutional Portfolios
As Bitcoin yield strategies become more available, their role in institutional portfolios should not be considered simply as an alternative investment. It’s viable as a core holding. The uncorrelated nature of Bitcoin returns provides valuable diversification benefits and its yield generation addresses income requirements.
No, Bitcoin is not a replacement for Treasuries. But this foremost digital asset should certainly be considered complementary. Treasuries provide liquidity and stability, but Bitcoin also offers exposure to a non-sovereign monetary system with different risk characteristics and drivers of return.
It’s entirely reasonable to expect that the emergence of Bitcoin yield will eventually establish a parallel reference rate alongside the Treasury curve. This would provide institutions with additional tools for portfolio construction in an increasingly varied global financial environment.
The reality is that Bitcoin’s maturation into yield-generating institutional holding suggests institutions shift how they approach portfolio construction and risk management, because there’s the potential to capture significant value as the market reprices Bitcoin from a risk asset to a potential reserve asset.
For institutional investors, Bitcoin can now contribute to portfolios through regular income generation in addition to its potential for price appreciation. As we move forward, the continued development of Bitcoin's financial ecosystem will likely produce even more sophisticated products and strategies worth a place in institutional portfolios.
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