BlackRock Proposes Including Bitcoin in Traditional 60/40 Investment Portfolios

BlackRock, the world's largest asset manager, has proposed including Bitcoin in traditional 60/40 investment portfolios, recommending a 1% to 2% allocation.

World’s largest asset manager, BlackRock, has suggested including Bitcoin in traditional 60/40 investment portfolios, with a recommended allocation of 1% to 2%.

This proposal, outlined in a report titled "Sizing Bitcoin in Portfolios" by the BlackRock Investment Institute, marks a shift in the asset manager's stance on Bitcoin, which has garnered significant attention as it crossed the $100,000 threshold.

The report positions Bitcoin as a potential tool for diversification, alongside major companies like Nvidia, Amazon, and Apple, which generate revenue through products and services, unlike Bitcoin, which functions primarily as a store of value.

If 1% of BlackRock’s $5.2 trillion equity holdings were allocated to Bitcoin, it would generate $50 billion in new demand for the digital asset.

Over the past year, Bitcoin’s price has surged by over 130%, outpacing the S&P 500’s 32% rise during the same period.

The report, led by Samara Cohen, Chief Investment Officer of ETF and Index Investments, compares Bitcoin’s risk profile to the "Magnificent 7" tech giants, which account for a significant portion of the S&P 500’s market capitalization.

“These [stocks] provide an example of single portfolio holdings that account for a comparatively large share of portfolio risk,” the report states.

Bitcoin's $2 trillion market capitalization and low correlation with traditional markets highlight its potential for diversification.

The report also notes a shift in Bitcoin’s market behavior since mid-2023, where it began to diverge from technology stocks due to factors like geopolitical tensions, financial system fragmentation, and declining trust in traditional banking.

Cohen outlines a framework for using Bitcoin to enhance diversification while addressing its price volatility, which has included steep declines historically.

The analysis shows that a 1% allocation of Bitcoin adds 2% to overall risk, while a 2% allocation increases risk to 5%. Larger allocations contribute disproportionately to risk, with a 4% allocation accounting for 14% of overall risk, leading to a recommendation to cap allocations at 2%.

BlackRock anticipates that Bitcoin’s characteristics may evolve as the asset matures, potentially taking on a role similar to gold in investment portfolios, which would involve more tactical uses, such as hedging against specific risks.

The firm's growing involvement in Bitcoin reflects broader market trends. In 2022, BlackRock partnered with Coinbase to offer institutional access to Bitcoin and currently manages the iShares Bitcoin Trust (IBIT), the world's largest Bitcoin ETF with $50.8 billion in assets.

As Bitcoin adoption expands, BlackRock continues to explore its potential as a diversification tool while navigating its inherent risks.