BlackRock: 2% Bitcoin Allocation Is a ‘Reasonable Range’

December 12, 2024

Bitcoin has been making headlines as its value continues to soar, with some investors wondering how to best include it in their portfolios. According to a recent paper from BlackRock Investment Institute, allocating 1% to 2% of your portfolio to Bitcoin could be a reasonable range to consider. Beyond that, the paper warns that the risk to your overall portfolio could increase significantly.

The paper compares the potential risk of including Bitcoin in your portfolio to investing in the popular technology stocks known as the Magnificent Seven. While Bitcoin’s correlation to other assets is low, its volatility can have a similar overall impact on portfolio risk. This is why taking a “risk budgeting” approach when considering Bitcoin as an investment might make sense.

Despite Bitcoin’s impressive 140% surge this year, the cryptocurrency has also experienced significant drawdowns of 70% to 80% since its creation in 2009. The recent surge in Bitcoin’s value has been partially fueled by the launch of US spot Bitcoin ETFs in January, which have attracted over $113 billion in assets since their debut.

The BlackRock paper suggests that wider institutional adoption of Bitcoin could help reduce some of its volatility. However, this could also mean that the cryptocurrency’s returns may not be as eye-popping in the future. As Bitcoin continues to gain mainstream acceptance, its risk profile could potentially decrease, but this could also limit its potential for further significant price increases.

As of Thursday, the price of Bitcoin was holding steady at around $101,600. It’s clear that Bitcoin’s future in multi-asset portfolios is a topic worth exploring, especially as its value continues to climb. It remains to be seen how investors will navigate the risks and rewards of including Bitcoin in their portfolios in the future.