According to ShibDaily, BlackRock Investment Institute has advised investors to consider a 1-2% allocation to Bitcoin, describing it as a 'reasonable' portion of a diversified portfolio. The recommendation comes with a caution that higher allocations could significantly increase portfolio risk. In a report titled 'Sizing Bitcoin in Portfolios,' released on December 12, BlackRock compared this allocation to the risk associated with investing in the 'Magnificent 7' mega-cap tech stocks, which include Amazon, Apple, Microsoft, Alphabet (Google), Tesla, Meta (Facebook), and Nvidia. The report suggests that a portfolio consisting of 60% stocks and 40% fixed income assets would experience similar risk levels with a modest Bitcoin allocation.
BlackRock highlighted Bitcoin's notorious volatility, noting that the cryptocurrency often undergoes substantial price fluctuations, even during bull markets. This volatility could dramatically increase the overall risk of a portfolio with a larger Bitcoin allocation. The firm also emphasized the need for a unique perspective on Bitcoin's potential returns, as it lacks underlying cash flows for estimating future returns. Instead, the extent of Bitcoin's adoption is considered crucial. The report suggests that Bitcoin could become less risky over time, but this might reduce its potential for significant price increases. Investors might prefer to use Bitcoin tactically, similar to gold, to hedge against specific risks.
BlackRock CEO Larry Fink has previously expressed interest in 'tokenizing the world,' with Bitcoin being a starting point. He envisions tokenization as a way to digitize real-world assets like real estate, bonds, and stocks, enabling them to be traded on blockchain networks. BlackRock's support for Bitcoin investment is partly driven by the success and growing adoption of Bitcoin ETFs, which have garnered substantial interest from both institutional and retail investors. The firm currently holds over $53 million worth of Bitcoin, representing nearly half of the sector's market share. A report by Sygnum Bank on December 12 suggests that increasing institutional inflows into Bitcoin could lead to 'demand shocks' by 2025, potentially driving up the cryptocurrency's spot price. This article is intended for informational purposes only and should not be considered financial advice. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
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