Exploring Bitcoin’s Role in Portfolio Construction
Although the correlation of digital assets with traditional investments has been widely studied, adding Bitcoin to equity and fixed-income portfolios is less frequently discussed beyond a simple allocation. Commonly quoted allocations of 3%-5% are typically considered from a return perspective rather than their impact on overall portfolio risk.
Our research examines this gap by analyzing the effect of Bitcoin on risk-adjusted returns and its contribution to portfolio risk. We find that allocations of 2%-7% enhance risk-adjusted returns but also lead to a concentration of risk, with over 75% of portfolio risk often attributable to Bitcoin. This highlights the importance of reevaluating traditional approaches to managing portfolio risk when incorporating digital assets.
Read on to explore the challenges and solutions for integrating digital assets into modern portfolios.
