According to Zhito Finance APP, as investors rush to buy Bitcoin, many are wondering how much of their portfolio should be allocated to this digital currency. The world's largest asset management company, BlackRock, has provided the answer: no more than 2%.
Bitcoin is known for its volatility. This year alone, Bitcoin has surged from $43,000 to over $103,000, while in 2021, it plummeted from $67,000 to $17,000. Bitcoin is a relatively new asset and often moves in patterns that are contrary to other assets, making it difficult for investors to assess risk.
In a report released on Thursday, BlackRock suggested that investing up to 2% of a multi-asset portfolio in Bitcoin is a 'reasonable range.' The asset management company began venturing into the cryptocurrency space this year by launching a spot Bitcoin exchange-traded fund (ETF). BlackRock noted that in a typical portfolio consisting of 60% stocks and 40% bonds, the risk generated by this weighting is comparable to that of 'seven major technology stocks.'
The report states: 'Why not invest more? Beyond this level, Bitcoin's share of the overall portfolio risk will significantly increase.'
According to a report released by BlackRock in September, Bitcoin, in addition to its high volatility, typically has a low correlation with other assets. The company stated that Bitcoin, being a decentralized currency not significantly affected by geopolitical risks and inflation, is a 'unique diversification investment tool.' The report suggests that allocating up to 2% of a portfolio to Bitcoin can increase sources of different returns without introducing excessive risk.
However, BlackRock's report on Thursday clearly pointed out that Bitcoin's future remains uncertain, and its investment appeal may change. BlackRock warned investors to remain vigilant about Bitcoin's volatility and its vulnerability to significant sell-offs.
The report states: 'Considering all these factors, we do see reasons to include Bitcoin in a multi-asset portfolio—provided you believe Bitcoin will see broader adoption in the future and are willing to bear the risk of its price potentially plummeting.'