Why Bitcoin's non-correlated nature could make it a smart diversifier, and how a risk-managed approach with the Fortuna Hedged Bitcoin ETF ($HBTC) can potentially help investors hold it with more confidence.
Everyone has an option on Bitcoin.
We believe the right question for prospective investors isn’t whether or not to own the asset class at all, but rather, how much Bitcoin is the right amount?
The so-called “right amount” isn’t the maximum you could hold, nor is it none at all. The right amount should be calibrated to your risk tolerance, your long-term investing goals, and ultimately your ability to maintain the allocation when volatility strikes.
Determining the right allocation for you requires a framework for thinking about Bitcoin's role in a portfolio and finding a strategy that makes it palatable for you to continue to hold over time.
"Bitcoin has a spot in your portfolio - in moderation. You know, call it three, four, 5%, whatever your risk tolerances are. But it has a place because of its non-correlated nature."
- Mark Adams, CIO and Co-Founder of Fortuna Funds
What Makes Bitcoin Different
Bitcoin isn’t a stock or a bond. It doesn’t move with the S&P 500, track interest rate expectations, or respond to corporate earnings the way traditional assets do. When equity markets sell off, Bitcoin does not reliably fall in lockstep. When bonds are pressured by rising rates, Bitcoin is operating on an entirely different set of fundamentals.
This independence - what investment professionals call low or non-correlation - is precisely what gives it a distinct role in a well-constructed portfolio. This behavioral independence means that adding even a small Bitcoin allocation can change the risk/return profile of a portfolio in ways that other diversifiers simply cannot replicate.
Historically, Bitcoin has exhibited correlation coefficients with the S&P 500 that hover near zero over longer periods, meaning its price movements have largely been driven by factors independent of traditional market cycles. In our view, this is Bitcoin’s meaningful diversification benefit.
Unfortunately, Bitcoin’s volatility can be a deterrent for allocators who might otherwise stand to benefit from its noncorrelation with other parts of their portfolio. Its non-correlated nature cuts both ways: the same independence that insulates it from stock market drawdowns can also produce sharp, rapid declines that are difficult to ride through without a structured approach.
For the Right Allocation, Think in Moderation
You do not need to be a Bitcoin maximalist to benefit from what Bitcoin brings to a diversified portfolio. The data suggests a modest allocation - somewhere in the 3% to 5% range for most investors - can meaningfully improve risk-adjusted returns without requiring you to bet the portfolio on a single volatile asset.¹
Here is why moderation works:
- A small allocation captures the diversification benefit without overexposing the portfolio to Bitcoin-specific drawdowns.
- At 3-5% of an investor’s total portfolio, a 30% Bitcoin correction becomes a manageable 0.9%–1.5% drag on total portfolio performance. This might be uncomfortable, but it’s not catastrophic.
- Over time, the uncorrelated return contribution has the potential to improve overall portfolio efficiency.
We believe a common mistake that many investors make is binary thinking: either they avoid Bitcoin entirely (often because of its volatility), or they accumulate far more than they can psychologically or financially sustain. Both extremes undermine the actual diversification case.
The goal isn’t to eliminate Bitcoin’s volatility, it’s to stay invested through it. Win by losing less.
The Real Challenge: Staying Invested When Bitcoin Drops
The honest reality of investing is that the benefits of diversification are only realized if investors can stay invested for the long term. And although Bitcoin is a relatively new asset class, decades of research on the psychology of inventors has shown that staying invested through sharp drawdowns - which we know from its relatively short history that Bitcoin delivers with regularity - is very difficult.
Bitcoin has dropped ~30% in a single week multiple times in its history. This extreme volatility can test even the most disciplined investors. Do I buy more? Should I hold on? When do I finally capitulate and sell? Without a structured risk management framework, many - or perhaps most - investors end up selling near the bottom, which converts a temporary drawdown into a permanent loss.
Traditional approaches to managing Bitcoin’s volatility problem often fall short.
- Outright put options on Bitcoin can be prohibitively expensive, because elevated volatility inflates option premiums.
- Put spreads reduce costs but offer only partial coverage since once the lower strike is breached, losses resume at full speed.
- Holding through volatility works in theory, but when put to the test generally requires a level of discipline most investors cannot consistently sustain.
The Fortuna Hedged Bitcoin ETF ($HBTC) was designed specifically to address Bitcoin’s volatility problem and to help Bitcoin investors maintain their allocations for the long-term. By using an actively managed options overlay strategy applied to bitcoin-related securities, HBTC seeks to provide Bitcoin-linked exposure with structured downside risk management and give investors a more stable footing from which to hold Bitcoin through volatile markets.
How HBTC’s Uncapped Collar Strategy Works
The strategy at HBTC’s core is built on a simple but powerful idea that the best hedge is one that is cost-efficient enough to actually implement over time.
HBTC’s portfolio management team uses a time-tested "uncapped collar" structure that works as follows:
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STEP 1 |
The Fund maintains exposure to Bitcoin-related securities, seeking to participate in Bitcoin’s upside. |
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STEP 2 |
HBTC purchases protective put options designed to help limit downside exposure during significant Bitcoin declines, preventing the portfolio from falling alongside Bitcoin during its sharp drops. |
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STEP 3 |
To help offset the cost of protective puts, HBTC sells a call spread, generating premium income. This is what makes the hedge sustainable over time but doesn’t cap investors’ upside gains the way a traditional collar does. |
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STEP 4 |
The options positions are repositioned monthly, so the hedge remains calibrated to current market conditions rather than drifting out of alignment. |
The result is an investment structure that lets investors participate in Bitcoin’s long-term return potential while seeking to reduce the severity of the drawdowns that typically force investors out of the position prematurely.
Why a Buy-and-Hold Strategy Can Work With HBTC
The conventional wisdom on Bitcoin investing is that it rewards long-term holders. And historically, that has been true - but only for investors who were able to maintain their position through multiple 50%+ drawdown cycles.
HBTC aims to make maintaining an allocation to Bitcoin easier. By seeking to cushion the deepest drawdowns, the Fund is designed to make the buy-and-hold approach more psychologically and financially sustainable. Consider the difference:
- Direct Bitcoin exposure: An investor holds through Bitcoin's full downside, and may face a 30%, 40%, or 50% drawdown with no structural cushion. The temptation to sell - and lock in losses - can become overwhelming.
- HBTC: The options overlay strategy seeks to limit the depth of drawdowns. The investor still participates in Bitcoin’s upside potential, but the floor is higher, which means staying invested can become a more viable choice.
HBTC’s options overlay strategy isn’t about completely eliminating volatility; we know that Bitcoin will remain a volatile asset regardless of how it is packaged. But there is a significant difference between enduring volatility with no structure and navigating it with a discipline-enforcing risk management framework built in.
Five Practical Tips for Getting Bitcoin Investing Right
1. Size the position to your true risk tolerance, not your aspirational one.
We believe that a 3-5% allocation is a reasonable starting point for most diversified portfolios. The key is selecting a size you will not feel compelled to sell during a major drawdown. An allocation you can hold through volatility is worth far more than a larger position you sell at the bottom.
2. Think of Bitcoin as a diversifier, not a core holding.
Bitcoin earns its place in a portfolio because of its non-correlated behavior relative to equities and fixed income, not due to any single price target. Framing it as a diversification tool - instead of a primary growth bet - tends to produce better long-term outcomes.
3. Choose a structure that makes holding easier.
One of the biggest determinants of long-term Bitcoin investment outcomes is simply whether the investor stayed invested. HBTC’s options overlay strategy is specifically designed to reduce the behavioral friction of holding Bitcoin through volatile periods.
4. Avoid binary thinking.
You don’t need to be fully convinced that Bitcoin will reach any particular price target to benefit from its diversification properties. Many investors find it easier to make the case for a modest, hedged Bitcoin allocation than to make a strong directional bet on the asset.
5. Pair Bitcoin exposure with active management.
Passive Bitcoin holding works - until it becomes unpalatable for the investor. HBTC’s monthly repositioning of options positions means the hedge stays calibrated to current market conditions.
The Bottom Line
The Fortuna Hedged Bitcoin ETF($HBTC) is designed for investors who want that exposure without the unstructured risk of direct Bitcoin ownership. By combining Bitcoin-related securities exposure with an actively managed options overlay strategy, HBTC seeks to deliver Bitcoin’s diversification benefits while seeking to reduce the severity of the drawdowns that historically prevent investors from capturing them.
Learn more at: fortunafunds.com/hbtc-fund.
Diversification does not assure a profit or protect against loss. Past performance does not guarantee future results.
Source:
¹ https://www.fidelitydigitalassets.com/research-and-insights/getting-zero-evaluating-bitcoin-2026
