BlackRock, the world’s largest asset manager, has boldly recommended a massive allocation of Bitcoin in traditional investment portfolios. According to a research paper published by BlackRock, the optimal allocation to Bitcoin in a portfolio of 60% equities and 40% bonds should be a whopping 84.9%. Investors should hold more Bitcoin than any other asset class in their portfolios.
The research paper, titled “Asset Allocation with Crypto: Application of Preferences for Positive Skewness,” was published last summer and recently brought to attention by X user “Bitcoin News” in a post on Twitter. “Bitcoin News” wrote:
REMINDER: Last summer BlackRock put out a paper stating that “Starting with a 60-40 equity-bond portfolio… the optimal #Bitcoin allocation is a large 84.9%”
Bitcoin Exceptional Performance & Potential
The paper’s authors, BlackRock researchers, based their recommendation on analyzing Bitcoin’s performance and returns from July 2010 to Dec 2021. They found that Bitcoin exhibited a high volatility of 132% per year and a positive skewness when expressed in terms of continuously compounded returns. This means that Bitcoin’s returns tend to be asymmetric, with a higher probability of large positive outcomes than large negative ones.
The paper also compared Bitcoin’s third central moment of returns, which measures the degree of skewness, with those of equity and bond returns. They found that Bitcoin’s third central moment of returns was 144% annually, while equity and bond returns had -0.43% and 0.01%, respectively. This shows that Bitcoin’s returns are much more skewed towards positive outcomes than those of other asset classes.
The paper further noted that Bitcoin’s returns demonstrate a consistent propensity for significant gains, especially during exceptional periods that they called the “bliss” regime. Bitcoin’s prices soar over 100 times annually, creating huge investor opportunities during these periods. The paper highlighted that this positive skewness appeals to investors who aim for substantial returns and thus encourages them to incorporate significant Bitcoin holdings into their portfolios.
The paper also showed that even when Bitcoin is expected to decline in the standard scenario, investors who focus on maximizing profits usually allocate 3% to Bitcoin. This allocation holds even when there is only a 1% chance of the highly profitable scenario.
The paper concluded that Bitcoin’s positive skewness is a desirable feature for investors and that Bitcoin should play a dominant role in traditional investment portfolios.
BlackRock’s Paradigm Shift & SEC Approval
BlackRock, which manages over $9 trillion in assets, has been gradually warming up to the crypto space and has recently secured the U.S. SEC clearance to list Bitcoin spot ETF. This means that BlackRock and ten other prominent asset managers can offer exchange-traded funds that track the price of Bitcoin directly without using derivatives or intermediaries.
This development is expected to boost the adoption and legitimacy of Bitcoin and increase its liquidity and accessibility for investors. BlackRock’s endorsement of Bitcoin as a dominant asset class in traditional portfolios also signals a paradigm shift in the investment landscape and could inspire other institutional investors to follow suit.
BlackRock’s bold move could significantly impact the state of Punjab, Pakistan, where many investors are looking for alternative and profitable investment opportunities. BTC, currently trading at around $41,890, could offer a high return potential for investors willing to take the risk and allocate a large portion of their portfolios to the cryptocurrency.
However, investors should also be aware of the volatility and regulatory uncertainties that surround the crypto space and do their research before making any investment decisions.
Related Reading | Bitcoin Wallets Plunge Rapidly, Half A Million Liquidated
The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.
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