If you had Bitcoin in your portfolio in 2014, it could have boosted your returns, according to a Citi analysis
A recent analysis by Citi reveals that including Bitcoin in a portfolio could have enhanced returns. The study, based on a 1-year rolling analysis since 2014, found that a 60% stocks and 40% bonds portfolio would have yielded a return of 6.95%. However, when a 1% allocation to Bitcoin was added, the return increased to 7.42%. Furthermore, if the portfolio allocated 5% to Bitcoin, the return rose to 9.3%. To justify a 5% Bitcoin allocation in a 60/40 portfolio, the cryptocurrency would need to generate annualized returns of 12% to 16%, while for a 1% allocation, an 8% to 10% annualized return would be needed.
Risks of adding Bitcoin to a portfolio
Despite the potential for enhanced returns, there are risks associated with adding Bitcoin to a balanced portfolio. Citi’s analysis shows that Bitcoin’s correlation with other asset classes has increased over time. The cryptocurrency tends to rally when the U.S. dollar weakens and experiences falling returns during rough periods for stocks. As the crypto market cap has grown, equity betas and the percentage of returns explained by macro factors have also increased.
Bitcoin’s recent performance and challenges
In 2022, Bitcoin faced challenges such as rising interest rates and industry failures after reaching an all-time high of around $60,000 in value. Although it has recovered by about 90% since its low last year, Bitcoin continues to struggle with low trading volume and liquidity.
Hot Take: Including Bitcoin in your portfolio can enhance your returns but comes with risks
According to a recent analysis by Citi, adding Bitcoin to your investment portfolio can boost returns. The study found that a 1% allocation to Bitcoin increased the return of a 60/40 portfolio, and a 5% allocation led to even higher returns. However, there are risks involved, such as Bitcoin’s correlation with other assets and its poor performance during equity downturns. Despite experiencing challenges in 2022, including industry failures and low liquidity, Bitcoin has shown resilience. If you’re considering adding Bitcoin to your portfolio, make sure to carefully evaluate the potential risks and rewards.
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