BlackRock recommends: Don’t put more than 2% of your portfolio in Bitcoin
As Bitcoin becomes popular among new investors, everyone is wondering how much money to put in the digital currency. Global asset management giant BlackRock has the answer: Don’t put more than 2%.
As the first cryptocurrency, Bitcoin is extremely volatile. This year, its price has risen from $43,000 to more than $103,000, and last year it fell from $67,000 to $17,000. It is still a new thing and often goes against the conventional trend of other assets, which makes it difficult for investors to assess the risks.
In a report released on Thursday, BlackRock said that investing up to 2% of a multi-asset portfolio in Bitcoin is a "suitable range." The asset management company began to dabble in cryptocurrencies this year and launched a Bitcoin spot exchange-traded fund. They feel that in a typical portfolio of 60% stocks and 40% bonds, this ratio brings about the same risk as the "big seven technology stocks."
The report also asked: "Why can't you invest more? If you exceed this amount, the proportion of Bitcoin in the overall portfolio risk will increase significantly."
When considering Bitcoin, BlackRock recommends that investors use the "risk budget method". In simple terms, it is to decide how much money to invest based on the contribution of the asset to the overall risk of the portfolio. This contribution depends on the volatility of the asset and its correlation with the changes in other assets.
BlackRock's September report said that in addition to its high volatility, the value of Bitcoin is usually not related to other assets. They believe that Bitcoin is a decentralized currency that is not greatly affected by geopolitical risks and inflation, and is a "unique diversification tool." Investing 2% of the money in it can make more money and the risk will not be too great.
But Thursday's report also said that the future of Bitcoin is still unknown, and its investment attractiveness may change. BlackRock reminds investors to be careful of Bitcoin's volatility and the risk of a sharp drop.
The report concluded: "Taking all these factors into consideration, we do think it is necessary to add Bitcoin to a multi-asset portfolio - but you have to believe that it will become more popular in the future, and you have to be willing to bear the risk of a sudden price drop.”
