Bitcoin's Role in Long-Term Capital Market Assumptions: Strategic Asset Allocation in a Post-Quantitative Easing Era

In the post-quantitative easing (QE) era of 2023–2025, Bitcoin has transitioned from a speculative asset to a strategic component of institutional portfolios. As central banks unwind accommodative monetary policies, investors are reevaluating asset allocation frameworks to balance inflation hedging, diversification, and risk-adjusted returns. Bitcoin's unique properties-its capped supply, censorship-resistant blockchain, and growing financial infrastructure-have positioned it as a compelling candidate for inclusion in long-term capital market assumptions (CMAs). This analysis explores Bitcoin's evolving role in strategic asset allocation, drawing on academic research, institutional adoption trends, and projected capital market metrics.

Bitcoin's Correlation Dynamics: Risk Asset or Diversifier?

Academic studies reveal a nuanced picture of Bitcoin's relationship with traditional assets. In December 2023, Bitcoin's correlation with the S&P 500 index reached 0.72, indicating strong alignment with equities during periods of economic optimism. This suggests Bitcoin is increasingly behaving as a risk asset rather than a safe-haven asset. However, this correlation is not static. Research using Quantile-Vector Autoregressive models shows that Bitcoin and other green cryptocurrencies interact with traditional assets like gold, the U.S. dollar, and crude oil during global shocks, with gold acting as a stabilizer and the dollar transmitting volatility.

Critically, Bitcoin's correlation with equities has shown a declining trend, while its correlation with gold has risen, making it more akin to a digital store of value. This evolution is pivotal for strategic allocation, as lower correlations with traditional assets enhance diversification benefits. Yet, caution is warranted: a 2025 study warns that Bitcoin's high volatility and elevated correlation with risk assets during bear markets undermine its suitability as a reserve asset for governments or institutions.

Institutional Adoption and Regulatory Legitimacy

The institutionalization of Bitcoin has accelerated in 2025, driven by regulatory clarity and infrastructure development. The U.S. SEC's approval of spot Bitcoin ETFs in January 2024 marked a turning point, with BlackRock's IBIT briefly reaching $100 billion in assets under management. By November 2025, spot ETFs held over 800,000 BTC, reflecting robust institutional demand.

Governments have also begun treating Bitcoin as a strategic reserve asset. The U.S. Strategic Bitcoin Reserve (SBR), launched in 2025, and similar initiatives in states like New Hampshire and Texas, signal a shift in policy toward embracing digital assets for economic resilience and geopolitical flexibility. These moves are underpinned by Bitcoin's potential to hedge against currency debasement and serve as a cross-border payment tool in constrained financial systems.

Capital Market Assumptions: Projected Returns, Volatility, and Correlation

Bitcoin's integration into long-term CMAs hinges on its projected risk-return profile. Bitwise Asset Management estimates a 28.3% compound annual growth rate for Bitcoin through 2035, with a target price of $1.3 million. CFB's analysis projects an even higher $1.42 million by 2035, assuming Bitcoin captures one-third of the global store-of-value market. These assumptions are supported by methodologies such as comparative valuation (linking Bitcoin to gold's market share) and production cost models (factoring in mining efficiency and electricity costs).

Volatility, while historically high, peaked at 54.4% in 2025, is expected to moderate to 28% by 2035 as liquidity deepens and derivatives markets mature. Correlation with U.S. stocks is projected to stabilize at 0.39, offering moderate diversification benefits. However, Bitcoin's volatility remains a double-edged sword: while it amplifies returns in bull markets, it also exacerbates drawdowns during corrections.

Strategic Allocation Frameworks: Balancing Potential and Risk

Institutional investors are increasingly allocating 1–5% of portfolios to Bitcoin, leveraging its high expected returns and low correlations with traditional assets. This aligns with capital market assumptions that emphasize Bitcoin's role in enhancing risk-adjusted returns, particularly in a post-QE environment where traditional safe-haven assets face inflationary pressures.

Yet, strategic allocation must account for Bitcoin's unique risks. For instance, the Federal Reserve's monetary policy-real interest rates and the monetary base-continues to influence Bitcoin prices, with tighter policy regimes often triggering sell-offs. Additionally, regulatory shifts, such as the U.S. GENIUS Act, could further institutionalize Bitcoin but also introduce new compliance costs.

Conclusion: A Digital Store of Value in a New Era

Bitcoin's role in long-term capital market assumptions is no longer speculative but increasingly institutional. Its projected returns, moderating volatility, and evolving correlation profile make it a viable strategic asset in post-QE portfolios. However, its integration requires careful balancing of potential and risk, particularly in light of its sensitivity to macroeconomic and regulatory dynamics. As capital market models refine their assumptions, Bitcoin's journey from fringe asset to foundational component of global finance appears firmly underway.