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JPMorgan recommends a 1% BTC portfolio allocation

Photo of: Nathan VDH
by Nathan VDH

What is the right level for Bitcoin in a multi-asset portfolio? According to JPMorgan experts, investors should devote 1% to cryptocurrencies. Bitcoin thus constitutes a hedge.

Since its new purchase of Bitcoin, Square now holds 5% of its cash in the form of cryptocurrencies. Is this too much in terms of risk? The slider is complex to adjust. Nevertheless, allocating part of its investments to crypto is an effective strategy.

This is the position put forward in a note by two financial strategists from the JPMorgan bank. Allocating a small percentage would mitigate the risk of any significant decline in the value of digital assets.

“In a multi-asset portfolio, investors can probably add up to 1% of their allocation to cryptocurrencies to achieve an efficiency gain in overall risk-adjusted portfolio returns,” suggest Joyce Chang and Amy Ho.

Bitcoin and other crypto-actives, but in small doses. In addition, analysts believe these digital assets should be considered as investment vehicles. However, they do not act as currency financing funds.

JPMorgan’s ratings follow one another, but they are not the same. In terms of corporate treasury, the investment bank indeed recommended caution. Or at least, it considered significant allocations by these players unlikely.

“The main problem with the idea that corporate treasurers will follow Tesla’s lead is the volatility of Bitcoin,” says Morgan.

For the bank’s strategists, large companies thus tend to maintain the level of volatility of their portfolio at around 1%. However, even at this level, the Bitcoin allocation would generate “a strong increase in the volatility of the overall portfolio”.

Another apparent contradiction noted by CoinTelegraph. Earlier in February, other JPM experts believed that crypto-assets were the “poorest hedge against significant equity declines. ยป

Increasing institutional adoption of Bitcoin would, however, increase its value, and thus increase returns for investors. For example, to grow by about $40,000, Bitcoin would require all S&P 500 companies to allocate 1% of their cash to assets.

According to Ark Invest, 1% allocation would be too little. For the investment advisory specialist, this share should range from 2.55% to minimize volatility to 6.55% to maximize returns.