BlackRock, the world’s leading asset manager with $11.5 trillion in assets under management (AUM), suggests a moderate Bitcoin (BTC) investment for balanced portfolios.
According to Bloomberg, the BlackRock Investment Institute released a paper on Dec. 12 saying that a Bitcoin allocation of up to 2% is a “reasonable range” for multi-asset portfolios.
BlackRock’s analysis indicates that a 1% to 2% Bitcoin weighting in a typical portfolio of stocks and bonds would have a similar risk profile to holding the “Magnificent Seven” tech stocks.
The paper also emphasizes a “risk budgeting” approach, acknowledging Bitcoin’s volatility while recognizing its potential for diversification benefits.
“Even though Bitcoin’s correlation to other assets is relatively low, it’s more volatile, making its effect on total risk contribution similar overall,” authors wrote in the paper. “A Bitcoin allocation would have the advantage of providing a diverse source of risk, while an overweight to the “Magnificent Seven” would add to existing risk and to portfolio concentration.”
BlackRock Invests Big as Bitcoin Breaks Records
BlackRock‘s paper arrives while Bitcoin reaches record highs above $100,000, fueled by growing mainstream adoption and favorable regulatory developments worldwide.
Bitcoin has surged to an all-time high of $104,000, pushing its market dominance up by 4.4% to 57%. #Bitcoin #Dominancehttps://t.co/TSh2OAo4gl
— Cryptonews.com (@cryptonews) December 5, 2024
Since 2011, Bitcoin has seen a 20,000,000% rise, overshadowing the gains of the Nasdaq 100 index, which grew by 541%, and major US stock indices, which saw a 282% increase, as per Coinglass data.
Bitcoin’s annualized return of 230% also places it far ahead of all other asset classes. This is ten times higher than the Nasdaq 100, the second-best performer. Over the same period, large US stocks returned 14% annually, high-yield bonds yielded 5.4%, and gold saw a 1.5% return.
This increase in Bitcoin price is driven in part by the launch of US spot Bitcoin exchange-traded funds (ETFs) in January. As of Dec. 11, these ETFs have attracted more than $113 billion in assets since their debut, with investors pouring in nearly $10 billion since Trump’s presidential victory on Nov. 5, according to SoSoValue data.
BlackRock’s spot Bitcoin ETF, IBIT, leads the pack with more than $35 billion in cumulative net inflows.
On Nov. 23, BlackRock itself invested $2 billion in Bitcoin and currently holds $48.4 billion in the leading cryptocurrency, according to data from Arkham Intelligence. This purchase far exceeds the combined investment of all other ETFs, which totaled only $71 million on that day.
BLACKROCK BOUGHT $2 BILLION OF BITCOIN THIS WEEK
Current Holdings: $48.4 BILLION BTC pic.twitter.com/mB3SJntIu3— Arkham (@arkham) November 23, 2024
Potential Downsides to Bitcoin’s Mass Adoption
However, BlackRock cautions that wider institutional adoption could potentially dampen Bitcoin’s volatility, which might also moderate its potential for dramatic price increases.
“Looking ahead, should Bitcoin indeed achieve broad adoption, it could potentially also become less risky – but at that point it might no longer have a structural catalyst for further sizable price increases,” the report concludes.
In September, BlackRock also called Bitcoin a “unique diversifier,” highlighting its low long-term correlation to traditional assets such as stocks and bonds, despite some short-term similarities.
Bitcoin’s scarcity, decentralized nature and global accessibility were cited as key reasons for its potential to act as a hedge against geopolitical and monetary risks.
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