BlackRock Advises Clients to Allocate 1-2% of Portfolios to Bitcoin
BlackRock Inc. (NYSE: BLK), the largest asset manager globally with over $11.5 trillion in assets under management (AUM), has achieved notable success with its Bitcoin adoption strategy, particularly through its iShares Bitcoin Trust (IBIT) and iShares Ethereum Trust (ETHA). As of now, IBIT has approximately $53.8 billion in net assets under management and has surpassed BlackRock's Gold ETF within a year of its launch, according to Ki Young Ju, founder of CryptoQuant.
BlackRock on Sizing Bitcoin in Portfolios
A report from BlackRock emphasizes considering Bitcoin in multi-asset portfolios similarly to mega-cap tech stocks. While Bitcoin differs from traditional assets, it can fit into a conventional portfolio structure. Key Federal Reserve officials regard Bitcoin as digital gold, suggesting it may exceed the market cap of precious metals. BlackRock recommends that clients allocate 1-2 percent of their traditional portfolios—comprised of 60 percent stocks and 40 percent bonds—to Bitcoin.
The firm states that this allocation aligns with the risk profile of the ‘magnificent 7’ large-cap tech stocks. Although Bitcoin shows relatively low correlation with other assets, its volatility contributes to total risk similarly. BlackRock's CIO of ETF and index investments, Samara Cohen, noted that while Bitcoin provides diverse risk sources, excessive weighting in the Magnificent 7 increases portfolio concentration risk.
Clients are advised against exceeding a 2 percent Bitcoin allocation due to increased overall portfolio risk. Historical data indicates Bitcoin prices have faced corrections of up to 80 percent during major bear markets, leading to significant losses. However, Bitcoin's volatility has decreased over time alongside rising correlations with equity returns.
Here are the main charts they discuss in the piece where they use a risk budgeting approach to Bitcoin allocation: pic.twitter.com/Ylrx1H9W7u
— James Seyffart (@JSeyff) December 12, 2024
Impact on BTC
The rise in institutional adoption of Bitcoin has altered market dynamics, with supply on centralized exchanges falling below 2.23 million BTC as of December 12. US spot Bitcoin ETFs have accumulated more than 1 million BTC, previously held in dormant wallets by Satoshi Nakamoto, demonstrating substantial institutional engagement in the cryptocurrency sector. Consequently, Bitcoin prices are projected to increase significantly in the coming years, with potential projections reaching $1 million if the US government establishes a strategic BTC reserve.