Table of Contents
Investors should only dedicate of 2% of their portfolios to Bitcoin, according to BlackRock, but crypto research firm BRN suggests otherwise.
In a report on Thursday, the asset management giant said that adding Bitcoin to a portfolio is akin to investing in top tech stocks – rewarding but risky.
“Over its short history, Bitcoin has seen both major surges and selloffs,” the report said. “This volatility, plus Bitcoin’s unique characteristics, raises the question of what role it should play in portfolios.”
It then suggest that “a reasonable range for Bitcoin exposure” was less than 3% of a portfolio’s total value, adding that the leading cryptocurrency is risky due to its lack of underlying cash flows.
"In a traditional portfolio with a mix of 60% stocks and 40% bonds, those seven stocks each account for, on average, about the same share of overall portfolio risk as a 1-2% allocation to Bitcoin," the report said.
Looking ahead, BlackRock believes Bitcoin could become less risky but "at that point it might no longer have a structural catalyst for further sizable price increases."
The report comes as Bitcoin continues to hover around its all-time high, flirting again with the $100K mark. BlackRock's Bitcoin ETF, IBIT, also recently surpassed its iShares Gold ETF (IAU) in terms of net assets
However, crypto research firm BRN believes BlackRock's recommendation is far too conservative.
Blockhead
"While BlackRock recommends allocating no more than 2% to Bitcoin, investors with a higher risk appetite and a long-term horizon could justify a larger allocation," said BRN analyst Valentin Fournier.
"Given that Bitcoin’s four-year market cycles align well with the typical 5-7 year investment horizon often recommended for stocks, the potential rewards outweigh the short-term volatility for risk-tolerant investors."
Instead, BRN recommends an allocation 10x higher than BlackRock. "Its high potential returns suggest that such investors could reasonably allocate a 10-20% share of their portfolio to digital assets, particularly if they are willing to embrace Bitcoin’s unique growth dynamics," Fournier said.
"As Bitcoin matures and its risk profile shifts closer to gold’s, investors may consider rebalancing their portfolios toward stocks or other assets to maintain a balanced risk/reward exposure. For now, Bitcoin remains a compelling choice for those seeking high-reward opportunities in an evolving financial landscape."
