Bitcoin's "rollercoaster" ride prompts BlackRock to suggest not more than 2% allocation

Intelligence Finance App learned that as investors scramble to buy bitcoin, many are wondering how much of their portfolio should be invested in the cryptocurrency. The world's largest asset manager, BlackRock, has an answer: no more than 2%.

Bitcoin is known for its volatility. This year alone, it has risen from $43,000 to above $103,000, and in 2021, it has fallen from $67,000 to $17,000. Bitcoin is a relatively new asset and often moves in the opposite direction of other assets, making it hard for investors to measure risk.

BlackRock suggested in a report released on Thursday that investing up to 2% of a multi-asset portfolio in bitcoin is a "reasonable range." The asset manager began venturing into the cryptocurrency space this year, launching a spot bitcoin exchange-traded fund. The weight in a portfolio of 60% stocks and 40% bonds, BlackRock said, produces risk comparable to the "Big Tech" stocks.

"Why not invest more? Beyond this level, the share of bitcoin risk in the overall portfolio would increase significantly," the report said.

According to BlackRock's September report, bitcoin's value is typically lowly correlated with other assets, in addition to its high volatility. The company said that because bitcoin is a decentralized currency that is not affected by major geopolitical risks and inflation, it is a "unique diversification tool." Investing up to 2% of a portfolio in bitcoin, the report said, adds a different source of returns without adding too much risk.

But BlackRock's report on Thursday made clear that the future of bitcoin is still uncertain and its investment appeal may change. The company warned investors to be wary of bitcoin's volatility and vulnerability to a sharp sell-off.

"All things considered, we do see a rationale for including bitcoin in a multi-asset portfolio — provided you believe bitcoin will be more widely adopted in the future and are willing to accept the risk that prices may fall sharply," the report said.