Bittime - BlackRock recommends investing Bitcoin at a maximum of 2% of the portfolio. Discover the reasons behind these decisions and wise Bitcoin investment strategies. Check out the full review here!
Bitcoin is often a hot topic that attracts attention, especially because of its extreme volatility. On the one hand, there is the opportunity for big profits, but on the other hand, the risk of significant losses is also lurking.
So, how should an investor include Bitcoin in his portfolio? The answer comes from BlackRock, the world's largest asset manager, which recommends that investors only put a maximum 2% of their portfolio in Bitcoin. This is the complete review.
BlackRock Suggests Only 2% of Portfolio to Buy Bitcoin
Source: Decrypt
This recommendation is based on Bitcoin's extremely high level of volatility. This year alone, the price of Bitcoin soared from around $43,000 (around IDR 688 million) to more than $103,000 (around IDR 1.65 billion).
Meanwhile, in 2021 the price plunged from $67,000 (around Rp. 1.07 billion) to only $17,000 (around Rp. 272 million). With sharp and often unpredictable price fluctuations, BlackRock considers that although Bitcoin has large profit potential, the risks posed are no less significant.
According to BlackRock's latest report, investing in Bitcoin is up to 2% of the total portfolio is considered a reasonable step.
In a report released last Thursday, BlackRock stated that 2% of a multi-asset portfolio consisting of 60% stocks and 40% bonds would provide a level of risk comparable to the large technology stocks known as "Magnificent Seven"—like Amazon, Apple, and Microsoft.
Read also: What is Bitcoin and How Does It Work?
2% Portfolio for Bitcoin So a Realistic Proportion
According to this company, this proportion is not only realistic but also balanced, considering the characteristics of Bitcoin which tend to be more volatile than other assets.
However, BlackRock also warned that if the Bitcoin allocation proportion exceeds 2%, the impact will be overall portfolio risk will increase drastically. This means that although there is potential for profit, there is also the possibility of greater loss if the market experiences sharp price changes.
The “Risk Budgeting” Approach to Investing in Bitcoin
As a leading asset manager, BlackRock advocates a more cautious approach to managing risk when investing in Bitcoin. They call it a term “risk budgeting approach”, or risk budgeting approach.
This means, before deciding how much to allocate to Bitcoin, investors need to evaluate how much risk contribution Bitcoin will add to the overall portfolio.
With high volatility and low correlation to other assets, Bitcoin has a unique character in the investment world. BlackRock noted that, although Bitcoin is very vulnerable to sharp price drop, it also works as a diversification effective.
Read also: What is Bitcoin Halving and How Does It Affect Bitcoin?
This means that even though its price can be highly volatile, Bitcoin has the potential to deliver different sources of returns. This can be achieved without increasing the risk excessively, as long as the portion remains within reasonable limits.
Risks and Opportunities in the Future of Bitcoin
Although BlackRock recognizes the diversification potential offered by Bitcoin, they also do not turn a blind eye to the lurking risks.
In a report released last September, BlackRock said that the value of Bitcoin is often not correlated with other assets. This is what makes it such an attractive option portfolio balancing.
However, the company also warned that Bitcoin's future is still very uncertain not sure. Because, hBitcoin prices are very volatile and its vulnerability to sharp sell-offs is a major concern.
“Nevertheless, we still see potential to include Bitcoin in a multi-asset portfolio, provided you believe Bitcoin will become more widely adopted in the future and are prepared to bear the risk of a sharp price decline,” BlackRock explained in their report.
Read also: How is the History of Bitcoin?
FAQs About BlackRock
Does BlackRock Own Bitcoin?
Increasing investor demand and rising bitcoin prices are already good business for Blackrock. In 2022, they partnered with Coinbase to allow institutional clients to purchase bitcoin, and today, they operate the world's largest bitcoin ETF, iShares Bitcoin Trust (IBIT), with assets under management of $50.8 billion.
What Is The Name Of BlackRock's ETF For Bitcoin?
The iShares Bitcoin Trust ETF (ticker IBIT) surpassed the $33 billion iShares Gold Trust (IAU) in terms of total assets, reaching $34.3 billion after posting a record $1.1 billion in revenue on Thursday, according to data compiled by Bloomberg.
Who Owns BlackRock?
BlackRock is an independently managed public company with no single majority shareholder. PNC Financial Services Group, Inc. owns a minority stake in BlackRock and the remainder is owned by institutional and individual investors, as well as BlackRock employees.
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Reference
Yahoo Finance, BlackRock recommends investing no more than 2% of your portfolio in Bitcoin, accessed December 13, 2024.
News Bitcoin, Blackrock Compares Bitcoin to 'Magnificent 7' Stocks: The Next Big Allocation Play, accessed December 13, 2024.
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