- ARK Invest suggests allocating 19.4% of institutional portfolios to Bitcoin for optimal risk-adjusted returns.
- Bitcoin outperformed major assets over the past 7 years, averaging 44% annualized returns compared to 5.7%.
- The firm believes long-term investors benefit from holding Bitcoin despite short-term volatility.
Bitcoin’s Stellar Performance Justifies High Allocation
A recent report by ARK Invest argues that institutional portfolios aiming for maximized risk-adjusted returns should have allocated nearly 20% to Bitcoin in 2023. This reflects Bitcoin’s historical outperformance compared to traditional assets.
Over the past seven years, Bitcoin delivered an average annualized return of 44%, dwarfing the 5.7% average of other major asset classes. ARK emphasizes that long-term investors benefit from holding Bitcoin despite short-term price fluctuations-
“Instead of ‘when,’ the better question is ‘for how long?’ Historically, investors who bought and held bitcoin for at least 5 years have profited, no matter when they made their purchases.”
From 0.5% to 19.4%: A Growing Role for Bitcoin
ARK’s analysis highlights the evolving role of Bitcoin in portfolios. In 2015, the optimal allocation for maximizing risk-adjusted returns over a five-year horizon was only 0.5%. This figure has steadily increased, reaching an average of 4.8% since then. 2023 saw the highest recommended allocation yet, at 19.4%.
“According to our analysis, in 2015, the optimal allocation to maximize risk-adjusted returns on a 5-year time horizon would have been 0.5%. Since then, on the same basis, the average allocation to Bitcoin would have been 4.8%, and in 2023 alone, 19.4%.”
$2.3 Million Bitcoin?
The report explores a hypothetical scenario where global investors follow ARK’s 19.4% Bitcoin allocation. Even a 1% allocation from the $250 trillion global investable asset base could push Bitcoin’s price to $120,000 per coin.
Following the average 4.8% allocation would result in a $550,000 price, while adhering to the full 19.4% recommendation could see Bitcoin reach a staggering $2.3 million.
ARK’s research marks a significant shift in recommended Bitcoin allocations compared to previous years. Previously, prominent figures like Ray Dalio and JPMorgan suggested allocations between 1% and 2%.
ARK’s data-driven approach, emphasizing Bitcoin’s long-term potential and diversification benefits, presents a compelling case for a larger role in investment portfolios.
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