Bitcoin
BlackRock Study Recommends 84.9% Bitcoin Allocation for Optimal Portfolio
The world’s largest asset manager suggests a game-changing Bitcoin allocation for investors seeking to maximise returns.
In a groundbreaking asset allocation study, BlackRock, the world’s largest and most influential asset manager, suggests that Bitcoin is a standalone investable asset that could be transformative for investors seeking to maximise returns. The study, which tracks BTC as a standalone investable asset, was conducted in April 2022 and has gained newfound popularity across Twitter.
BlackRock Advises Massive Bitcoin Allocation
The performance of Bitcoin as an asset was studied from July 2010 to December 2021 on a monthly basis. BlackRock’s findings indicate that for a 60-40 portfolio (60% equities and 40% bonds) with a fixed risk aversion of γ = 1.50, the optimal allocation to BTC is an astounding 84.9%. The remaining 15.1% is suggested to be split between equities and bonds.
It was found that adding Bitcoin to a portfolio significantly improved its risk-adjusted returns, as measured by the Sharpe ratio. The Sharpe ratio is a metric that indicates the excess return per unit of risk of an investment. According to the study, the Sharpe ratio of a 60-40 portfolio without Bitcoin is 0.72, while the Sharpe ratio of a portfolio with 84.9% Bitcoin allocation is 1.53.
BlackRock’s Changing Views on Bitcoin
BlackRock’s views on Bitcoin over the last few years have changed significantly:
2017 – BlackRock CEO Larry Fink called Bitcoin an “index of money laundering,” but he has since tempered that view.
2020 -Larry Fink said Bitcoin has “caught the attention” of many people and that it could “evolve” into a global market asset.
January 2021 – BlackRock filed documents with the SEC indicating that it could include cash-settled Bitcoin futures in two of its funds.
February 2021 – Rick Rieder, the chief investment officer of global fixed income at BlackRock, revealed that the firm had “begun to dabble” in Bitcoin, citing its potential as a store of value and a hedge against inflation5.
July 2023 – BlackRock filed an application with the SEC for a spot Bitcoin ETF, which would allow investors to buy and sell Bitcoin directly through a regulated exchange.
The SEC has not yet approved any spot Bitcoin ETFs in the U.S., but many observers believe that BlackRock’s reputation and influence could sway the regulator’s decision.
Potential Bitcoin ETF Approval
A spot Bitcoin ETF could be a game-changer for the Bitcoin market, as it would provide easier access, lower costs, and higher liquidity for investors who want to gain exposure to the cryptocurrency. It would also boost the legitimacy and adoption of Bitcoin as a mainstream asset class.
The SEC has been reluctant to approve a spot Bitcoin ETF, ostensibly due to concerns about market manipulation, custody issues, and the overall maturity of the underlying market. However, informed observers believe that these concerns are no longer valid (if they ever were!), as the Bitcoin market has grown significantly in size, diversity, and sophistication over the years.
The World Is Not Waiting For The USA and SEC.
Some countries in Europe, as well as Canada and Brazil, have already approved spot Bitcoin ETFs, setting a precedent for other regulators to follow. The SEC is currently reviewing several applications for spot Bitcoin ETFs from various firms, including VanEck, WisdomTree, Fidelity, and Valkyrie. It has rejected every single spot Bitcoin ETF application to date.
The first window for a decision is 45 days after acknowledging an application, but the SEC does have the capacity to delay a decision for up to 240 days. If any Bitcoin ETF is approved, it could open the floodgates for other spot Bitcoin ETFs to launch in the U.S., creating more demand and competition for the cryptocurrency.
BlackRock’s study suggests that Bitcoin is a powerful and unique asset that can enhance the performance and diversification of any portfolio. The study also shows that BlackRock has evolved its views on Bitcoin and is actively pursuing opportunities to offer exposure to its clients.
A spot Bitcoin ETF could be the next catalyst for Bitcoin’s growth and adoption, as it would lower the barriers and increase the benefits for investors who want to participate in the cryptocurrency market. The SEC’s approval of a spot Bitcoin ETF could also signal a shift in the regulatory landscape and attitude towards Bitcoin in the U.S.