As per the latest Forbes report, a recent report by BlackRock titled ‘Sizing Bitcoin in Portfolios’, its analysts have noted that Bitcoin offers a risk profile similar to the Magnificent Seven firms like Apple, Amazon, Tesla, Nvidia, Meta, Google, and Microsoft.
In the research report, analysts led by the CIO of ETF and Index products, Samara Cohen, noted that the $2 trillion cryptocurrency offers a similar risk profile to the Magnificent 7 firms, whose average market capitalization is $2.5 trillion and have accounted for nearly 35% of the S&P 500’s $46 trillion market capitalization. Analysts assert that the crypto should now account for 1% to 2% of traditional “60/40” investment portfolios. This would position the asset similarly to companies like Nvidia, Amazon, or Apple even though Bitcoin has little utility other than as a speculative asset, and it derives no revenues from products like corporate titans.
The BlackRock report also pointed out bitcoin’s historically low correlation to traditional markets. While bitcoin was highly correlated to other asset classes, and tech stocks, during the COVID boom and bust, it started to diverge in June 2023. The report predicts this will continue due to global financial fragmentation, rising geopolitical tensions, distrust in banks, and increasing deficits.
In their analysis, Cohen and her team discovered that a 1-2% allocation in a 60/40 portfolio yields a risk profile similar to that of a Magnificent 7 stock. A 1% weighting would contribute 2% of risk, while a 2% allocation increases the risk weighting to 5%. Another doubling in the weighting to 4% would account for an exponentially higher 14% of overall risk, according to the report.
Though Blackrock only recommends a maximum of 2% as appropriate for most investors it also indicated that future price gains may be more difficult. “The return characteristics are likely to change significantly once we reach a target state where potentially the portfolio allocation is much more tactical like gold and is used for hedging with a very different set of characteristics,” remarked Cohen.
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