According to the research unit of the investment company Alliance Bernstein, which manages assets worth $631 billion, the share of BTC in the investor’s portfolio can be up to 10%.
Inigo Fraser Jenkins, co-head of the portfolio strategy group at Bernstein Research, said that in January 2018, the firm excluded BTC from the list of potential investment assets. But post-tandem changes in policy, debt levels, and diversification options for investors mean that the company must “recognize that bitcoin does have a stake in the asset allocation,” at least in the long run.
Fraser Jenkins said that the” significant reduction ” in bitcoin price volatility makes it more attractive both as a savings tool and for payments. The pandemic has also led to an increase in the correlation of BTC with other major assets. On the other hand, according to Fraser Jenkins, bitcoin is a liquid asset and can undergo a quick sell-off, as happened during the March market crash.
“From a narrow empirical point of view, bitcoin’s downward shift in volatility makes it more interesting as an investment vehicle, but its increased correlation with traditional assets indicates otherwise,” wrote Fraser Jenkins.
When it comes to hedging inflation risks, ” bitcoin’s driving force is similar to gold’s driving force.” Other issues, such as the use of cryptocurrency for criminal purposes and the significant energy consumption of bitcoin miners, were also named among the risks associated with the asset, along with increased regulatory oversight.
According to Fraser Jenkins, there could be potential problems with BTC in the future, as a pandemic could make governments more powerful and give them more control in managing the economy. If the cryptocurrency markets grow strongly, they may “start to annoy the politicians.”
“There is a place for cryptocurrency in the investment portfolio… as long as it is legal!”, – said Fraser Jenkins.
Ultimately, Bernstein Research recommends investing in bitcoin from 1.5% to 10% of the portfolio, depending on the monthly return of the cryptocurrency.
Recommended asset allocation in the portfolio. Source: Bernstein Research
“As a result, the share of bitcoin among assets is small. However, under this simple portfolio allocation optimization scheme, the share of some other asset classes is zero. Therefore, in this context, BTC empirically seems potentially significant, ” wrote Fraser Jenkins.
Recall that the other day, Guggenheim Partners filed an application with the US Securities and Exchange Commission (SEC) for the allocation of more than $500 million from the Macro Opportunities fund to invest in the Grayscale Bitcoin Trust. Earlier this month, Mike Novogratz advised investing up to 3% of the portfolio in bitcoin.