BlackRock Advocates Bitcoin for Diversified Portfolios, Suggests 2% Allocation

Asset management leader BlackRock is actively promoting Bitcoin (BTC) as a valuable addition to balanced investment portfolios. With over $10 trillion in assets under management, the firm has highlighted the role of Bitcoin in multi-asset strategies in a new research paper, according to Bloomberg.

BlackRock suggests a 2% allocation of Bitcoin in portfolios is “reasonable,” providing diversification without significantly altering the risk profile. The firm’s analysis compares this allocation to the risk associated with the “Magnificent Seven” technology stocks when incorporated into a traditional 60/40 portfolio of stocks and bonds.

The report clarifies, however, that going beyond a 2% allocation to Bitcoin could “sharply increase” overall portfolio risk due to the cryptocurrency’s high volatility. As explained by Samara Cowen and other authors of the research paper: “Even though Bitcoin’s correlation to other assets is relatively low, it’s more volatile, making its effect on total risk contribution similar overall. A Bitcoin allocation would have the advantage of providing a diverse source of risk, while an overweight to the Magnificent 7 would add to existing risk and to portfolio concentration.”

The Magnificent Seven, including tech giants like Google, Amazon, Tesla, Microsoft, and Nvidia, have delivered substantial returns over the past decade, but also contribute heavily to portfolio concentration.

Bitcoin’s Evolving Role

The report also discusses Bitcoin’s potential evolution as institutional adoption grows. While broader acceptance by major institutions may reduce Bitcoin’s volatility, this could simultaneously dampen the cryptocurrency’s historic capacity for dramatic price surges.

“Looking ahead, should Bitcoin indeed achieve broad adoption, it could potentially also become less risky – but at that point, it might no longer have a structural catalyst for further sizable price increases,” the report notes.

As of now, Bitcoin is trading at $101,573, reflecting a 1.1% dip over the past 24 hours. BlackRock’s endorsement of Bitcoin as part of a diversified portfolio underlines the growing recognition of digital assets in mainstream investment strategies.