- BlackRock advises an 84.9% Bitcoin allocation in equity and bond portfolios.
- BlackRock researchers analyzed Bitcoin’s returns from 2010 to December 2021.
- While BTC’s third central moment of returns was 144%, equity and bond returns were -0.43% and 0.01%.
The world’s largest asset manager, BlackRock, published a research paper advocating for an aggressive allocation of Bitcoin in traditional investment portfolios. The paper is titled “Asset Allocation with Crypto: Application of Preferences for Positive Skewness.”
In the paper, BlackRock researchers suggested that the optimal allocation to Bitcoin in an investment portfolio consisting of 60% equities and 40% bonds should be a substantial 84.9%. X user “Bitcoin News” called attention to this development in a recent post.
Notably, the BlackRock researchers analyzed Bitcoin’s performance and returns from July 2010 to December 2021. They found that Bitcoin exhibited considerable volatility of 132% per year. Specifically, the asset displayed positive skewness when expressed in terms of continuously compounded returns.
Meanwhile, according to the research, Bitcoin’s third central moment of returns was 144% annually. This figure starkly contrasts the percentages of -0.43% and 0.01% observed for equity and bond returns, respectively.
Furthermore, BlackRock researchers noted that Bitcoin returns demonstrate a consistent propensity for significant gains. They noted that typically, returns adhere to standard patterns, yet intermittently, there are exceptional periods. These are labeled the “bliss” regime, during which prices soar over 100 times annually.
The research highlighted that this positive skewness appeals to investors aiming for substantial returns, encouraging them to incorporate significant Bitcoin holdings into their investment portfolios.
Interestingly, even when Bitcoin is anticipated to depreciate in the standard scenario, investors focused on maximizing profits usually allocate 3% to Bitcoin. This allocation holds true even when there is only a 1% chance of the highly profitable scenario.
Significantly, BlackRock’s recommendation marks a significant departure from the usual cautious stance of traditional financial institutions towards cryptocurrencies. Notably, BlackRock and ten other prominent asset managers have secured the U.S. SEC clearance to list Bitcoin spot ETF.
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