Bitcoin ETF Portfolio Allocation Expert View: How Much Should Investors Hold in BTC?
Now that spot Bitcoin ETFs have been approved, how should you incorporate them into your investment portfolio? Here's what experts suggest
Key Takeaways
- Bitcoin ETFs are a good way to get exposure to Bitcoin without having to buy and store the cryptocurrency.
- Investors should only allocate a small percentage of their portfolio to Bitcoin ETFs, according to experts.
- Analysts suggest investors may gradually increase their holdings over time as they become more comfortable with this asset class.
With the introduction of bitcoin exchange-traded funds (ETFs) in 2021, investors now have a way to gain exposure to the cryptocurrency without having to buy and store it directly. However, the question remains: how much should investors allocate to BTC ETFs in their overall portfolios?
There is no one-size-fits-all answer to this question, as the appropriate allocation will vary depending on individual investor risk tolerance, investment goals, and time horizon. However, some experts shared their tips on how to add spot Bitcoin ETFs to your investment portfolio.
How Much Should Investors Hold In BTC?
The time-tested 60/40 portfolio model, known for its balance between equity growth and bond stability, has historically been a reliable choice for investors. However, emerging data suggests that portfolios incorporating Bitcoin can surpass the performance of their exclusively traditional counterparts. The following chart illustrates how the inclusion of Bitcoin in a conventional portfolio has bolstered returns from February 2012 to December 2023.
Tailoring VanEck’s approach to align with investors’ risk tolerance and investment objectives, experts advocate for the incremental addition of Bitcoin, even in modest percentages such as 0.5%, 1%, and 3%. These seemingly small allocations possess the potential to reshape the dynamics of the conventional 60/40 portfolio significantly.
VanEck experts propose that investors consider replacing a portion of their “Real Assets” allocation with Bitcoin. Noteworthy is Bitcoin’s finite supply of 21 million units and its fixed issuance schedule. This means the number of new bitcoins issued undergoes a halving approximately every four years. These characteristics underscore its role as a store of value assets, positioning it uniquely within the investment landscape.
Consensus among experts suggests that allocating no more than 5% of your portfolio to cryptocurrencies is a prudent strategy.
According to Bruno Ramos de Sousa, Head of Global Expansion at Hashdex , this percentage is “small enough to keep an investor comfortable in periods of high volatility, but also large enough to have a truly positive impact on the portfolio if crypto prices rise.”
Some other experts, like Aaron Samsonoff, Chief Strategy Officer and Co-founder of InvestDEFY , permit higher allocations of up to 20%. Ultimately, the ideal proportion of cryptocurrency in your portfolio depends on your risk tolerance and personal beliefs regarding the cryptocurrency market.
Pros And Cons Of ETFs
Moody’s View
Ratings agency Moody’s said the recent approval of spot Bitcoin ETFs significance could not be overstated. According to Rajeev Bamra, the senior vice president and head of digital finance at Moody’s Investors Service, this development holds the potential to simplify and secure bitcoin investments for a broader investor base. In effect, this institutionalizes the cryptocurrency and makes it accessible to a wider range of investors.
The approval of these ETFs could usher in a new era for Bitcoin. It will transform it into a more mainstream and transparent asset, according to Moody’s. Bamra believes that this move could lead to a more stable and liquid cryptocurrency market. In turn, this could provide a reliable price discovery mechanism.
Bamra said: “The institutionalization of Bitcoin is poised to attract substantial inflows from institutions seeking entry into the cryptocurrency market.”
However, this step is not without its challenges and considerations. Bamra highlights the importance of global monetary policy and the need for Bitcoin products to meet regulatory and security standards.
Additionally, Moody’s Analytics Senior Director Yiannis Giokas cautions that, despite the potential benefits, traditional investors may face unfamiliar investment risks. This, he says, is due to bitcoin’s inherent price volatility and its fluctuating value compared to stablecoins and other cryptocurrencies.
In conclusion, the approval of spot ETFs on Bitcoin marks a pivotal moment in the cryptocurrency landscape. However, careful risk assessment and consideration of global economic factors will be crucial in navigating the markets evolving dynamics.
