BlackRock Recommends 2% Bitcoin Investment in Diversified Portfolios

BlackRock, the foremost asset management firm globally with $11.5 trillion in assets under management (AUM), advocates for a modest Bitcoin (BTC) investment within diversified portfolios.

As reported by Bloomberg, the BlackRock Investment Institute published a document on Dec. 12 indicating that a Bitcoin allocation of up to 2% is a “reasonable range” for multi-asset portfolios.

BlackRock’s evaluation suggests that a Bitcoin weighting of 1% to 2% in a standard portfolio of stocks and bonds would exhibit a risk profile comparable to that of the “Magnificent Seven” technology stocks.

The document also highlights a “risk budgeting” strategy, recognizing Bitcoin’s volatility while acknowledging its potential for diversification advantages.

“Although Bitcoin’s correlation with other assets is relatively low, it is more volatile, resulting in its overall impact on total risk contribution being similar,” the authors stated in the document. “A Bitcoin allocation would offer a diverse source of risk, whereas an overweight position in the “Magnificent Seven” would increase existing risk and portfolio concentration.”

BlackRock Invests Big as Bitcoin Breaks Records

BlackRock‘s report comes as Bitcoin achieves record highs exceeding $100,000, driven by increasing mainstream acceptance and favorable regulatory changes globally.

Bitcoin has soared to an all-time high of $104,000, enhancing its market dominance by 4.4% to 57%. #Bitcoin #Dominancehttps://t.co/TSh2OAo4gl

— Cryptonews.com (@cryptonews) December 5, 2024

Since 2011, Bitcoin has experienced a 20,000,000% increase, far surpassing the Nasdaq 100 index, which rose by 541%, and major US stock indices, which recorded a 282% gain, according to Coinglass data.

Bitcoin’s annualized return of 230% significantly outpaces all other asset classes, being ten times greater than the Nasdaq 100, the second-best performer. During the same timeframe, large US stocks yielded 14% annually, high-yield bonds returned 5.4%, and gold achieved a 1.5% return.

This surge in Bitcoin’s price is partly attributed to the introduction of US spot Bitcoin exchange-traded funds (ETFs) in January. As of Dec. 11, these ETFs have garnered over $113 billion in assets since their launch, with investors contributing nearly $10 billion following Trump’s presidential victory on Nov. 5, according to SoSoValue data.

BlackRock’s spot Bitcoin ETF, IBIT, leads the sector with more than $35 billion in total net inflows.

On Nov. 23, BlackRock itself invested $2 billion in Bitcoin and currently possesses $48.4 billion in the leading cryptocurrency, based on data from Arkham Intelligence. This investment significantly exceeds the total investment of all other ETFs, which amounted to only $71 million on that date.

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

Nonetheless, BlackRock warns that broader institutional adoption could potentially reduce Bitcoin’s volatility, which might also temper its capacity for significant price surges.

“Looking forward, if Bitcoin does achieve widespread adoption, it could also become less risky – but at that stage, it may no longer possess a structural catalyst for further substantial price increases,” the report concludes.

In September, BlackRock also referred to Bitcoin as a “unique diversifier,” emphasizing its low long-term correlation with traditional assets like stocks and bonds, despite some short-term similarities.

Bitcoin’s scarcity, decentralized nature, and global accessibility were identified as crucial factors for its potential to serve as a hedge against geopolitical and monetary risks.

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