BlackRock's Bitcoin Strategy: A Gem in the Rough

BlackRock, the world's largest asset manager, seems to be mining deep into the Bitcoin quarry.

Not only has the firm recently applied for a spot ETF, but it has also recommended an optimal portfolio allocation for Bitcoin that could potentially transform the financial landscape.

In a study conducted in April 2022, BlackRock analyzed Bitcoin's performance as an asset from July 2010 to December 2021.

The results were nothing short of a goldmine. For a 60-40 portfolio (60% equities and 40% bonds) with a fixed risk aversion of γ = 1.50, the optimal allocation to Bitcoin was a whopping 84.9%.

The remaining 15.1% was suggested to be split between equities and bonds, maintaining the 60-40 ratio.

Bitcoin: The New Gold Standard?

Joe Burnett from Blockware, commenting on the study, stated, "Great chart published by BlackRock. Investors with long time horizons should hold overweight equity portfolios. However, now that Bitcoin exists as a superior form of money and savings technology, investors should consider an optimal BTC allocation of 80-100%."

Burnett's observation raises eyebrows as he believes that if all investors adopt BlackRock's recommended BTC allocation, the value of BTC could soar to extraordinary heights.

He suggests, "If total global wealth is ~ $800T today, Bitcoin would be $190M per coin." This potential surge in BTC's value would make it worth more than five times the total combined value of equities, real estate, and bonds.

Bitcoin: A Must-Have Asset in Every Portfolio

The idea of Bitcoin as a must-have asset in every portfolio is gaining traction. Several banks have come out with a BTC price prediction above $120,000 over the past few weeks.

Notably, BlackRock's report acknowledges the extreme volatility of BTC but highlights its pronounced positive skewness, which makes large allocations of the digital asset highly appealing and potentially dominating in utility functions.

The study could shed light on how heavily BlackRock could promote Bitcoin after the spot ETF is potentially approved by the US Securities and Exchange Commission (SEC).

Here, it is important to remember the story of the first gold ETF which could repeat itself for Bitcoin.

The gold price rose fivefold after the first ETF in 2004; a weighty reason for this was the global presence of BlackRock's financial advisors, who promoted a 5% gold allocation in each portfolio as a must-have.

The Countdown for the First Spot Bitcoin ETF Approval

Speaking of ETFs, the countdown for the first spot Bitcoin ETF approval is approaching fast. BlackRock filed for its spot ETF in mid-June, with the first deadline for the SEC response set for September 2, 2023.

While the SEC has not yet approved a spot ETF, many analysts believe that BlackRock stands a strong chance of being the first.

However, the Ark and 21Shares Bitcoin ETF are first in line. After the refiling has passed the first deadline, the second one is on August 13. Moreover, Bitwise's first deadline ends one day before BlackRock, on September 1.

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