BlackRock Recommends Bitcoin Allocation

By Suzanne McGee

(Reuters) – BlackRock recommends that interested investors consider allocating as much as 2% of their portfolio to bitcoin, the world's largest cryptocurrency, in a report released on Thursday.

> “We see a case for investors with suitable governance and risk tolerance to include bitcoin in a multi-asset portfolio,” a team of four senior BlackRock (NYSE:BLK) executives, including Samara Cohen, Chief Investment Officer of ETFs and Paul Henderson, Senior Portfolio Strategist of BlackRock Investment Institute, stated in the short report.

The benefits of including bitcoin in an asset allocation model include its potential lower correlation with other major asset classes and its ability to offer a diversified source of return.

> “Investors should also be alert to bitcoin's risks,” the report cautioned. “It may not ultimately achieve broader adoption. And it remains highly volatile and vulnerable to sharp selloffs.” Furthermore, there have been times when bitcoin's returns have been more closely tied to stocks and other risk assets, which could undermine its position as a hedge.

In January, BlackRock was among ten companies to launch new exchange-traded products tied to bitcoin, marking the most successful ETF launch in history, with over $100 billion in assets, according to VettaFi data.

The majority of these assets have gone to BlackRock's iShares Bitcoin Trust, which now possesses $51.1 billion in assets.

BlackRock stated that its allocation recommendation considered how bitcoin’s inclusion would impact overall portfolio risk. While bitcoin is a unique asset, it shares similarities with major technology companies like Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT), known as the Magnificent 7.

According to BlackRock, these companies have an average market capitalization of $2.5 trillion, comparable to bitcoin's approximate $2 trillion valuation. Thus, significant exposure to these companies can equate to holding bitcoin regarding portfolio risk.

However, BlackRock cautioned that allocations exceeding the recommended 2% limit could result in bitcoin’s share of total portfolio risk being disproportionately high relative to the average Magnificent 7 stock.

BlackRock's report emphasized the necessity for investors to regularly review “bitcoin's changing nature,” including its adoption pace by institutional investors, correlation to stocks, and volatility.

News about BlackRock's recommended allocation was first reported by Bloomberg News.

Bitcoin's price remains relatively stable, sitting at around $101,390.