BlackRock recommends Bitcoin for diversified investment portfolios

Bitcoin, the world’s most well-known cryptocurrency, recently surpassed the $100,000 (€95,149) mark. This milestone has led BlackRock

Bitcoin, the flagship cryptocurrency, has recently crossed the $100,000 (€95,149) mark. This achievement has prompted BlackRock, the world’s biggest asset manager, to suggest including Bitcoin in diversified investment portfolios.

In its report titled ‘Sizing Bitcoin in Portfolios’, BlackRock highlights how Bitcoin can help investors spread risk.

Why does BlackRock recommend Bitcoin?

According to BlackRock, Bitcoin, which was once considered highly risky, is maturing and can now be a valuable addition to a well-balanced investment portfolio. The company suggests that a small allocation, only around 1-2 per cent of a typical 60/40 portfolio (a mix of 60 per cent stocks and 40 per cent bonds) could bring benefits through diversification.

Bitcoin’s total value, which is estimated at $2 trillion (€1.9 trillion), puts it on par with the combined market size of major tech companies such as Google and Microsoft. According to BlackRock’s Chief Investment Officer, Samara Cohen, Bitcoin’s unique features, such as its independence from traditional markets, make it an appealing way to reduce reliance on other assets including stocks.

Bitcoin operates without central control from banks or governments, making it particularly appealing during times of political and financial uncertainty. Bitcoin’s value doesn’t usually move in sync with stock or bond markets, making it a useful way to spread risk in a portfolio.

BlackRock notes that Bitcoin could see the biggest returns while it’s still gaining wider acceptance. However, this phase also comes with higher risks.

Moreover, Bitcoin’s price swings can be extreme, with past losses of up to 70 per cent in a year. Investors must be ready and stoic for sudden changes.

The future of Bitcoin

If Bitcoin does become more widely accepted, its value could stabilise, reducing its potential for massive price increases. In that case, Bitcoin could act more like gold – a way to protect generational wealth rather than a fast-growing investment.

In a recent article by Euro Weekly News, Spanish banks were reported to soon be offering cryptocurrency services like buying, selling, and storing digital currencies such as Bitcoin.

BlackRock’s research shows that even a small Bitcoin investment affects overall portfolio risk. For example, a 1 per cent allocation adds 2 per cent to overall risk, while a 2 per cent allocation increases it to 5 per cent. Going beyond 2 per cent could significantly increase portfolio risk, particularly during volatile market conditions.