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Standard Chartered recently tried a fascinating experiment: substituting Bitcoin for Tesla in the well-known “Magnificent Seven” (Mag 7) index of top tech stocks. What did they find? A big improvement in both performance and stability.
The Experiment: Tesla Out, Bitcoin In
The Mag 7 traditional index has such top performers as Apple, Microsoft, and Tesla. Standard Chartered analysts wanted to check, though, if Bitcoin, whose volatility is a well-known attribute but long-term returns are significant, could push the index up. Therefore, they came up with the “Mag 7B” index, substituting Tesla with Bitcoin.
The Results: Increased Returns, Reduced Volatility
The results were staggering:
5% Greater Returns – The Mag 7B index surpassed the original Mag 7 index by producing a 5% increase in returns.
2% Lower Volatility –Unexpectedly, in spite of Bitcoin’s notorious reputation for price fluctuations, the new index showed less overall volatility.
Why Bitcoin Instead of Tesla?
A number of reasons accounted for Bitcoin’s better performance:
Decentralized Asset – As opposed to Tesla, which is influenced by corporate choices and market emotions, Bitcoin has no dependency on any one organization.
Institutional Adoption – The growing acceptance of Bitcoin by large financial institutions has solidified its status as a valid asset class.
Macroeconomic Trends – Fears of inflation and the move towards digital assets have driven demand for Bitcoin.
What This Means for Investors
The research points to Bitcoin’s increasing function as an institutional-quality asset to compete with conventional stocks. Volatility is still a factor, but the capacity to add performance to an index marks a new direction in investment schemes.
Standard Chartered’s test adds new debate on whether Bitcoin deserves to be a part of diversified investment portfolios. With the maturity of the cryptocurrency market, we can expect financial institutions to include digital assets in conventional stock indices.
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