BlackRock compares its risk profile to the tech giants and suggests a 1-2% Bitcoin allocation in portfolios.
According to the latest Forbes report, BlackRock's recent report titled ‘Sizing Bitcoin in Portfolios', the analysts pointed out that Bitcoin has the same risk as Magnificent Seven companies like Apple, Amazon, Tesla, Nvidia, Meta, Google and so on. Microsoft
In the research report, the analysts, led by CIO of ETF and Index Products Samara Cohen, stated that the $2 trillion cryptocurrency presents a similar risk profile to the average market capitalization of $2.5 trillion and has a share of approximately 35%. The S&P 500's $46 trillion market capitalization. According to analysts, crypto should now contain 1% to 2% of traditional “60/40” investment portfolios. This puts the property on par with companies like Nvidia, Amazon or Apple.
The BlackRock report also noted bitcoin's historical relationship with traditional markets. Bitcoin has been highly correlated with other asset classes and technology stocks, but during the Covid boom and bust, it started to diverge in June 2023. The report says this is due to the global financial divide, rising geopolitical tensions, mistrust of banks and rising deficits.
In their analysis, Cohen and her team found that a 1-2% allocation in a 60/40 portfolio yields a similar risk profile to Magnificent 7 stocks. A 1% weight contributes 2% risk, while a 2% allocation increases the risk weight to 5%. Another 4% increase in weight is significantly higher than the total risk of 14%, the report says.
Although BlackRock recommends only a maximum of 2% is appropriate for most investors, it indicates that future price gains may be more severe. “The return characteristics can change dramatically once we reach the target state,” Cohen said.
