BlackRock Recommends 2% Bitcoin Allocation for Diversified Portfolios

• Recommended allocation: 1-2% of multi-asset portfolio in Bitcoin.
• Bitcoin ETFs attracted $113 billion in 2023.
• Bitcoin can diversify without mirroring big tech stocks.

BlackRock, the world's largest asset manager, highlighted in a recent report that to allocate Holding between 1% and 2% of a multi-asset portfolio in Bitcoin can offer a risk profile comparable to that of market-leading technology stocks. This recommendation comes amid growing institutional interest in the cryptocurrency market, driven by the launch of Bitcoin ETFs in the US and a 140% appreciation in the asset this year.

BREAKING: 🇺🇸 $10 TRILLION BlackRock says 2% # Bitcoin allocation is reasonable, and has similar risk profile to the Magnificent 7 (Apple, Amazon, Tesla, Nvidia, Meta, Google, MSFT) pic.twitter.com/AB0f85YAkh

—Swan (@Swan) December 12, 2024

The report, released by the BlackRock Investment Institute, suggests that moderate exposure to Bitcoin can diversify traditional portfolios composed of 60% stocks and 40% bonds. According to the manager, exceeding the 2% limit can disproportionately increase the total risk of the portfolio, due to the asset's inherent high volatility.

Samara Cohen, BlackRock’s chief investment officer for ETFs and index investing, said: “While Bitcoin’s correlation to other assets is relatively low, its intrinsic volatility makes its impact on total portfolio risk similar to that of highly concentrated technology stocks.”

Since January, Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust (IBIT), have moved $113 billion in assets, solidifying their role as a gateway for institutional investors. Furthermore, the report emphasizes that integrating Bitcoin into traditional investment strategies could transform its risk profile over time as adoption expands.

Although Bitcoin has surpassed the $100.000 mark, BlackRock maintains a cautious stance, suggesting that the asset should be used as a strategic component in balanced portfolios. The firm believes that the 2% threshold is sufficient to reap the diversification benefits without compromising the overall stability of the portfolio.

Bitcoin ETFs currently represent over 1,1 million BTC, with BlackRock’s IBIT holding around 529.000 tokens under custody at Coinbase. This expansion reflects the growing appetite for Bitcoin among traditional investors and paves the way for further discussions about prudent allocations to crypto assets.

At the time of publication, the price of Bitcoin was quoted at US$101.608, up 1.1% in the last 24 hours.

BlackRock’s research suggests that while Bitcoin may not directly resemble big tech stocks, it can play a similar role in balancing diversified portfolios, with an impact commensurate with its size and volatility.