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It is the first time that BlackRock has issued a recommendation of this style on exposure to BTC.
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At BlackRock they believe that, if BTC is widely adopted, “it could be less risky.”
BlackRock, the world’s largest asset manager, recommended an exposure of up to 2% in Bitcoin (BTC). This is the first time that the company has issued a recommendation of this style on institutional exposure to the world’s largest digital currency.
In a report Published this week, BlackRock notes that bitcoin cannot be compared to traditional assets. However, from a portfolio construction perspective, the Magnificent 7 group of mostly mega-cap tech stocks believes “it’s a useful starting point.”
The “Magnificent 7” are a group of seven US technology companies known for their size, influence and financial performance: Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms (Facebook), NVIDIA and Tesla.
These shares represent individual holdings in the portfolio that represent a comparatively large part of the portfolio riskas with bitcoin, according to BlackRock.
The entity maintains that, in a traditional portfolio with a mix of 60% stocks and 40% bonds, those seven stocks each, on average, represent approximately the same proportion of the overall risk that a 1-2% allocation to bitcoin.
BlackRock notes that bitcoin cannot be compared to traditional assets and recommends an exposure of up to 2%. Source: BlackRock.
“A reasonable range”
According to BlackRock, an exposure of up to 2% in bitcoin is within a “reasonable range” and they clarified that a larger allocation “would dramatically increase bitcoin’s share of overall portfolio risk.”
“Although bitcoin’s correlation with other assets is relatively low, it is more volatile, making its effect on the contribution to total risk similar overall,” authors including Samara Cohen, CIO of ETF Investments, wrote in the paper. BlackRock indices.
“A BTC allocation would have the advantage of providing a diverse source of risk, while an overweight in the Magnificent 7 would increase existing risk and portfolio concentration,” he noted.
In its report, BlackRock highlights that this year alone BTC has increased 140%, but that its path to records has been difficult, with drops of 70% to 80% since its creation in 2009.
They claim that, the January launch of the US spot bitcoin exchange-traded funds (ETFs). contributed to the rebound in cryptocurrencies this year. According to the company, the funds’ assets have risen to more than $113 billion since their debut, and investors have contributed almost 10 billion dollars since Donald Trump’s presidential victory in November, as reported by CriptoNoticias.
BlackRock is the company that has the most BTC under management through its IBIT ETF, with more than half a million coinsas this medium reported a few days ago, which is equivalent to about 3% of the total BTC supply of 21 million coins.
More adoption, less volatility
In its report, BlackRock points out that greater institutional adoption could decrease bitcoin’s volatility and, consequently, its risk as an asset. Although this would make it easier for investors to evaluate their allocation, it could also mitigate BTC’s notable returns, the investment firm notes.
“Looking ahead, if BTC achieves widespread adoption, it could also be less risky, but at that point it could no longer have a structural catalyst for significant further price increases,” they wrote from the investment firm.
This BlackRock analysis not only reflects a change in the perception of BTC by traditional financial institutions, but also opens the door for More investors consider including crypto assets in their portfolios.
BlackRock’s recommendation could significantly influence how fund managers and retail investors evaluate and manage the risk associated with cryptocurrencies in the future.
The price of bitcoin is extremely volatile. Source: TradingView.
Companies are likely to follow BlackRock, but there will be autonomy
As María Fernanda Juppet, CEO of Chilean exchange CryptoMKT, sees it, it is likely that many companies follow BlackRock’s recommendationgiven its relevance in global financial markets.
“However, others could choose to develop their own strategies, adapted to their specific objectives. This reflects the diversity of possible approaches in the crypto market and the opportunities it offers,” Juppet said in comments to CriptoNoticias.
In his opinion, this range of up to 2% can be considered appropriate for those seeking to diversify their portfolios without taking excessive risks. “However, the ideal proportion will depend on the risk profile of each investor, their financial objectives and the global economic environment,” he added.
As the executive explains, BTC exposure is a strategy based on three key principles: education, diversification and gradualness.
“First, it is essential to educate yourself to understand how bitcoin works, its volatility, and its potential as a store of value asset. Second, diversifying allows you to balance risks and optimize returns by combining BTC with other assets. Finally, taking a gradual approach, such as using dollar-cost averaging, can help mitigate the inherent volatility of the market,” he concluded.
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