$11.5 Trillion Asset Manager BlackRock Advocates for 1-2% Bitcoin Allocation in Traditional 60/40 Portfolio

The world’s largest asset manager, BlackRock, with $11.5 trillion in total assets under management, has unveiled a new report from the BlackRock Investment Institute advocating for a 1% to 2% allocation in Bitcoin on the traditional 60/40 portfolio, composed of a larger portion of equities than bonds.

According to a report from Forbes, BlackRock’s analyst was spearheaded by its Chief Investment Officer for ETFs and Index Investments, Samara Cohen, and draws parallels between the flagship cryptocurrency Bitcoin and the “magnificent seven” stocks, referring to tech giants including Amazon and Apple.

These companies’ average market capitalization is around $2.5 trillion, and they collectively account for roughly 35% of the stock market’s benchmark index, the S&P 500. The allocation BlackRock recommended, if applied to its equities assets, would lead to between $50 to $100 billion in net new demand for Bitcoin. 

The report adds that the “magnificent seven” provide an “example of single portfolio holdings that account for a comparatively large share of portfolio risk” and while they differ from BTC, these factors “make them a useful starting point for assessing the risk of a single holding.”

BlackRock also highlights Bitcoin’s historically low correlation with traditional markets and its potential as a valuable diversifier. The low correlation has been evident since June 2022 and is attributed to factors that include declining confidence in traditional banking systems and growing geopolitical tensions.

Cohen noted in the report that in 2022 there was a “huge negative event,” and interest rates rose in 2023, allowing investors to “maintain a highly defensive posture with minimal risk primarily by holding cash-like instruments” in their portfolios, but this year they have to “face the reality of investment risk, lower rates, and needing a long-term asset allocation.”

Per BlackRock’s research, a 1% allocation contributes approximately 2% to overall portfolio risk, while a 2% allocation to Bitcoin increases it to 5%. Higher allocations, the firm warns, significantly simplify risk. Cohen warned that future price appreciation may become more difficult as the return characteristics of BTC are “likely to change significantly once we reach a target state where potentially the portfolio allocation is much more tactical like gold.”

Gold, nevertheless, saw a 30% appreciation this year amid rising geopolitical tensions and as inflation has kept on affecting investors’ portfolios.

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