Rock's Push into Crypto: A 1-2% Bet on Bitcoin

BlackRock, the world's largest asset manager, has made a significant move by incorporating Bitcoin into its model portfolios for the first time. The company will allocate between 1% and 2% of its $150 billion model-portfolio universe to the iShares Bitcoin Trust ETF (IBIT). This strategic tweak introduces limited crypto exposure within BlackRock's structured portfolios, blending traditional investment frameworks with emerging alternative assets.

The move reflects evolving views on risk and diversification in modern portfolios. According to an investment outlook obtained by Bloomberg, the allocation specifically applies to BlackRock's target allocation portfolios that include alternative assets. These model portfolios, which bundle various funds into pre-structured investment strategies, have gained popularity among financial advisers in recent years. The adjustments often lead to substantial shifts in fund flows.

Michael Gates, lead portfolio manager for BlackRock's Target Allocation ETF model portfolio suite, wrote in a February 27 investment commentary, "We believe Bitcoin has long-term investment merit and can potentially provide unique and additive sources of diversification to portfolios." BlackRock is adding a 1% to 2% allocation to the $48 billion iShares Bitcoin Trust ETF in its target allocation portfolios that allow for alternatives.

BlackRock's decision comes amid recent volatility in Bitcoin's price. After peaking near $73,000 in March, Bitcoin is trading around $83,000 as of late February. Bitcoin's price fluctuations were a key factor in the firm's decision to limit its allocation to a 1% to 2% range. A December research paper from the BlackRock Investment Institute noted that exceeding 2% would significantly increase a portfolio's exposure to crypto-related risk.

The iShares Bitcoin Trust ETF, launched in January 2024, saw rapid inflows, attracting over $37 billion last year. However, investor sentiment has weakened recently, with $900 million in outflows recorded over the past week. Despite this, demand for Bitcoin exposure within BlackRock's model portfolios remains strong, according to the firm. Eve Cout, head of portfolio design and solutions for US Wealth at BlackRock, stated, "They all want to allocate more to alternatives, but they need guidance on how to size, scale, and rebalance the position."

The Bitcoin allocation is part of Black