BlackRock Suggests 1-2% Bitcoin Allocation in Portfolios, Comparing Its Risk Profile to Tech Giants
According to the latest Forbes ReportBlackRock recently released a report titled “Sizing Bitcoin in Portfolios,” in which its analysts noted that Bitcoin’s risk profile is in line with the likes of Apple, Amazon, Tesla, Nvidia, Meta, Google, and Microsoft. The seven major companies are similar.
In a research report, analysts led by ETF and Index Products CIO Samara Cohen noted that the $2 trillion cryptocurrency has a similar risk profile to the Magnificent 7 companies, which have an average market capitalization of $2.5 trillion, accounting for That’s nearly 35% more than the S&P 500’s $46 trillion market capitalization. Analysts assert that cryptocurrencies should now account for 1% to 2% of traditional “60/40” investment portfolios. This would make the asset similar to the likes of Nvidia, Amazon or Apple, although Bitcoin has little use outside of being a speculative asset and it won’t generate any revenue from the likes of corporate giants.
The BlackRock report also noted that Bitcoin’s correlation with traditional markets is at historically low levels. Although Bitcoin is highly correlated with other asset classes and technology stocks, Bitcoin began to diverge in June 2023 during the COVID-19 boom and bust. The report predicts that this will continue due to global financial fragmentation, rising geopolitical tensions, distrust of banks and financial crises. The deficit keeps growing.
In their analysis, Cohen and her team found that an allocation of 1-2% in a 60/40 portfolio would create a similar risk profile to Magnificent 7 stocks. A weight of 1% would contribute 2% to risk, while an allocation of 2% would increase the risk weight to 5%. The report said that if the weight were doubled to 4%, the overall risk would increase exponentially by 14%.
Although BlackRock only recommends that most investors opt for a maximum of 2%, it also suggests that future price increases may be more difficult. “Once we reach the target state, portfolio allocations may become more tactical like gold and used for hedges with very different characteristics, and return characteristics may change significantly,” Cohen said.
