Marex, a London-based financial services platform, has unveiled a new strategy designed to appeal to investors who are wary of the high price volatility in the crypto market. The strategy is a volatility-adjusted basket that includes Bitcoin (BTC), Ether (ETH) and the Dollar Index (DXY) futures. BTC and ETH have equal weight in the basket, with the DXY futures acting as a hedge. The basket is rebalanced between the three assets to target an annualized volatility of 8%. When volatility rises, the strategy reduces exposure to risk assets (BTC and ETH) and increases exposure to DXY. When volatility falls, the basket is rebalanced towards BTC and ETH.
This is the first institutional-grade FX and crypto vol-targeted strategy, said Mark Arasaratnam, co-head of Digital Assets at Marex. It’s targeted to investors wanting to gain some exposure to crypto but are concerned about its volatility. The DXY component of the strategy helps to reduce volatility and drawdowns, as research by Marex suggests that the basket involving DXY as the hedge asset would have generated a return of 29% between Jan. 1, 2021, to June 30, 2023.
According to Arasaratnam, the DXY acts as a robust complement to the long-only portfolio from both a thematic and empirical perspective. Bitcoin and Ether have had a persistent negative correlation over the past three years, and the DXY remains a hedge against systematic uncertainty, acting as a haven during times of stress in both crypto and wider markets.