Tariffs, volatility and the rise of Bitcoin in institutional portfolios

8 May 2025

If South African decision makers were to prioritise more enabling, forward-looking crypto regulations, traditional investors could capitalise on the market’s dynamism while mitigating risk through strategic asset allocation.

For generations, the narrative was clear: traditional stocks and property, the bedrock of established economies, offered a relatively stable path to wealth accumulation. Cryptocurrency, the often-misunderstood newcomer, was relegated to the fringes by many in traditional finance, but these dynamics and perceptions have shifted dramatically in the last while.

Cryptocurrencies, specifically Bitcoin, are now offering value with rising prices and increased stability – making them an attractive investment for fund managers and asset managers.

Sense of security shaken

The April global trade and tariff turmoil and resultant market reaction offer a lesson on the value of certain digital assets. The US tariff announcements, threats, backsteps and wildly swinging stock and bond market prices forced investors and fund managers to reassess the role cryptocurrencies such as Bitcoin can play in a balanced portfolio. It is a reassessment that traditional South African asset managers and government regulators should take note of.

Entire sectors such as the bond market and stock markets globally are now susceptible to sudden and significant corrections based on shifting politics and trade wars, as well as the spectres of real wars. It is not too far-fetched to say that the sense of security once associated with established asset classes has been shaken.

“Stocks saw more volatility than Bitcoin did amid tariff chaos”

“S&P 500 More Volatile Than Bitcoin as US Assets Lose Investor Favor”; “Bitcoin Emerges as Volatility Hedge as Wall Street Markets Plunge”.

These are just a few among the headlines that graced many investors’ feeds over the past few weeks.

Comparative steadiness

Bitcoin, however, after weathering its own cycles of intense volatility, has exhibited a comparative steadiness during the market turmoil. By 10 April, the Nasdaq had become more volatile than Bitcoin. Its 21-day annualised rolling volatility peaked at 59.8%, while Bitcoin’s 30-day measure was 46.4%.

Overall, Bitcoin’s volatility has been trending lower in the past few years. This is largely due to increased institutional adoption, especially since Bitcoin exchange-traded funds that track underlying value of the asset were launched. This fits into the larger trend: if you look at a graph of Bitcoin’s 52-week price volatility since 2012, you will see it fluctuate significantly for years, but from 2019, it starts to level out noticeably.

As the asset matures, it is less subject to extreme swings, making it less risky and more attractive to pension funds and cautious institutional investors who need to guarantee predictable returns to investors. Late last year, in a forward-thinking move, the first UK pension fund embraced the potential of digital assets, strategically allocating 3% of its portfolio to Bitcoin. The move indicates how global institutional investors are now including digital assets in traditional portfolios – marking a fundamental change in how cryptocurrencies are viewed by finance experts.

‘Safer option’

Some also argued that in a time of trade wars, digital assets might be a safer option than the traditional stock, bond and commodity markets. Tariffs can directly squeeze the profits of companies that deal with imports, which can also dent consumer confidence and weaken companies’ share prices. A cryptocurrency’s value is not tied to tariffs in the same way.

Furthermore, unlike the stock market’s workday hours, cryptocurrencies never sleep, trading 24/7. The always-on action makes it much more agile in a world where entire economic realities can be toppled with a single social media post.

Institutional investors are also realising it is an increasingly valuable asset., Bitcoin has increased about 40% in value over the past year to reach the $100,000 range.

Over 10 years, between May 2015 and May 2025, Bitcoin has produced returns of 40,806.7% and the S&P 500, a bellwether for the US stock market, by contrast returned 169.2%.

Over the past 10 years, annualised returns of Bitcoin average at about 80.1% a year versus the S&P 500’s annualised returns of just under 14%.

Watershed

There is the real prospect that this past April, as tariff chaos erupted, will be seen as somewhat of a watershed moment, a moment when many institutional players realised that digital assets have more to offer than they initially thought, helping them to diversify from holding only stocks and bonds as digital assets act differently from traditional investments.

In times of economic uncertainty, the fixed supply of Bitcoin offers a digital store of value beyond the control of central authorities and capricious world leaders. Scarcity, a core tenet of its design, with only 21-million coins that will ever be mined, also provides support that many traditional assets, susceptible to policy changes, cannot really match.

Of course, it is important to acknowledge that cryptocurrencies are not immune to volatility. And digital assets aren’t suddenly the entirely predictable investment your financial adviser always wished they would be.

However, recent market events highlight a double shift. Cryptocurrencies are better understood, and their place in a complex financial system is being acknowledged. The very characteristics that once made Bitcoin and other cryptocurrencies seem like a risky gamble to more conservative investors now look like the strengths they are.

Recent research by American digital currency asset management company Grayscale found that a 5% allocation of Bitcoin could maximise expected risk-adjusted returns in a portfolio.

“The reason is that, although Bitcoin is a volatile asset, it may offer a high return and a lower correlation to traditional assets, and therefore diversification benefits,” they stated.

As the US and other countries embrace enabling cryptocurrency regulations, South Africa is running the risk of falling behind. Currently, digital currencies are not designated as either offshore or onshore assets, making it very difficult for institutional investors to allocate capital or invest in assets like Bitcoin.

While the perception of extreme cryptocurrency volatility persists, it’s crucial to recognise that this volatility is increasingly relative and often less pronounced when it is viewed through a long-term lens. If more enabling, forward-looking crypto regulations were to be prioritised by South African decision makers, traditional investors can capitalise on the market’s dynamism while mitigating risk through strategic asset allocation.

Governments and financial institutions around the world must recognise the current moment for the immense opportunity it is. DM

Marius Reitz is General Manager: Africa & Europe at Luno.

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Comparative steadiness

‘Safer option’

Watershed