Author: Suzanne McGee, Reuters; Translated by: Deng Tong, Golden Finance
Asset management giant BlackRock suggested in a report on Thursday that interested investors consider allocating 2% of their portfolios to Bitcoin, the world's largest cryptocurrency.
A team of four BlackRock executives, including ETF Chief Investment Officer Samara Cohen and Senior Portfolio Strategist Paul Henderson, stated: "We believe that investors with appropriate governance and risk tolerance can include Bitcoin in a multi-asset portfolio." The investment research firm stated in a short-selling report.
Arguments supporting the inclusion of Bitcoin in asset allocation models include its potentially low correlation with other major asset classes and its ability to provide diversified sources of returns.
The report warned: "Investors should also be wary of the risks associated with Bitcoin." "It may ultimately fail to gain broader adoption. Moreover, it remains highly volatile and susceptible to sharp sell-offs." Additionally, at times its returns are more closely linked to those of stocks and other risk assets, meaning investors may not be able to rely on it as a hedging tool.
According to data from VettaFi, BlackRock was one of 10 companies that launched new exchange-traded products related to Bitcoin in January, marking the most successful ETF issuance in history with assets exceeding $100 billion.
Most of these assets have flowed into BlackRock's iShares Bitcoin Trust, which currently has $51.1 billion in assets.
BlackRock stated that its allocation recommendation is based on measuring the extent to which adding Bitcoin to a portfolio would increase overall risk. While the authors of the report noted that Bitcoin is a unique asset, it shares similarities with technology giants such as Nvidia (NVDA.O) and Microsoft (MSFT.O).
BlackRock stated that the significant rise of these companies on Wednesday played a crucial role in pushing the Nasdaq Composite Index to a new record above 20,000 points, with their average market capitalization around $2.5 trillion, close to Bitcoin's value of about $2 trillion. The company noted that a large investment in these companies could pose similar overall portfolio risk as owning Bitcoin.
However, BlackRock warned that if the maximum recommended allocation exceeds 2%, "the share of Bitcoin in portfolio risk becomes excessive compared to an average of 7 stocks."
BlackRock's report also noted that investors need to regularly review the "evolving nature of Bitcoin," including the speed at which institutional investors are adopting Bitcoin, its correlation with stocks, and its volatility.
