BlackRock: Bitcoin Risk Comparable to Tech Stocks, 1-2% Allocation Ideal

BlackRock Investment Institute, the global investment management firm, has recommended that a 1-2% allocation to Bitcoin is “reasonable” for investors while warning that higher allocations could significantly increase the risk within a portfolio.

In a report released on December 12, titled “Sizing Bitcoin in Portfolios,” the firm stated that this percentage carries “on average, about the same share of overall portfolio risk” as a typical investment in the “Magnificent 7” mega-cap tech stocks, within a portfolio made up of 60% stocks and 40% fixed income assets.

The “Magnificent 7” refers to the seven major tech companies: Amazon, Apple, Microsoft, Alphabet (Google), Tesla, Meta (Facebook), and Nvidia.

The company emphasized its recommendation of limiting Bitcoin allocations by stressing the cryptocurrency’s notorious volatility. The firm pointed out that Bitcoin often experiences significant price drops, even during bull markets, which would dramatically increase the overall risk of a portfolio with a larger allocation.

Additionally, the BlackRock noted that Bitcoin’s potential returns require a unique perspective, stating that investors “need to think about Bitcoin’s expected returns in a different way: it has no underlying cash flows for estimating future returns. What matters: the extent of adoption.”

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The report further stated that Bitcoin “could potentially also become less risky – but at that point, it might no longer have a structural catalyst for further sizable price increases.” It added that “investors may prefer to use it tactically to hedge against specific risks, similar to gold.”

BlackRock CEO Larry Fink previously expressed his vision to “tokenize the world,” with Bitcoin just being the beginning. He said that tokenization could reshape asset ownership by digitizing real-world assets like real estate, bonds, and stocks, allowing them to be traded on blockchain networks.

BlackRock’s support for Bitcoin investment is partly driven by the growing success and widespread adoption of Bitcoin ETFs, which have attracted substantial interest from institutional and retail investors alike.  

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The firm currently holds over $53 million worth of Bitcoin, nearly half of the sector’s market share. 

A December 12 report by Sygnum Bank suggests that increasing inflows from institutional investors into Bitcoin could trigger “demand shocks” by 2025, potentially driving up the cryptocurrency’s spot price.

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MICHAELA

Michaela is a news writer focused on cryptocurrency and blockchain topics. She prioritizes rigorous research and accuracy to uncover interesting angles and ensure engaging reporting. A lifelong book lover, she applies her passion for reading to deeply explore the constantly evolving crypto world.

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Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Daily is the official publication of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.

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