ARK Invest: Ideal Bitcoin Portfolio Allocation for 2023 Stood at 19.4%

Jonathan Stoker Feb 01, 2024, 09:20am 46 views

ARK Invest: Ideal Bitcoin Portfolio Allocation for 2023 Stood at 19.4%

Bitcoin: A Powerful Diversification Tool for Investment Portfolios

ARK Invest Emphasizes the Importance of Bitcoin in Portfolio Allocation

In ARK Invest's Big Ideas report for 2024, it was proposed that BitcoinBitcoin$42,260 -0.64% (BTC) serves as an efficient diversification tool and counterbalance within traditional asset classes. The ideal portfolio allocation for Bitcoin was stated to be just below 20%.

Bitcoin's Remarkable Annualized Return

Over the past seven years, Bitcoin has demonstrated an impressively high annualized return, far exceeding that of major asset classes. In 2023, the optimal allocation rose to 19.4%. This allocation to Bitcoin would have optimally increased a portfolio's risk-adjusted returns. When considering the prior years, the optimum allocation was significantly less, sitting at 0.5% in 2015 and 6.2% in 2022.

Bitcoin: More Than Just an Investment Option

Bitcoin is not merely another investment option. It is an essential component for diversifying investment portfolios and presents a unique growth potential within the realm of digital assets, according to the ARK Invest report.

Correlation with Traditional Assets

Bitcoin's low five-year correlation of 0.27 with traditional assets highlights its diversification benefits. Even a small allocation by institutional investors could markedly impact its price, given the colossal $250 trillion global investable asset base.

Bitcoin's Market Value Performance

The leading cryptocurrency by market value reported a 77.8% increase over the last year, as per The source Indices data.

Institutional Demand and Bitcoin's Performance

A recent report by JPMorgan attributed Bitcoin's outstanding performance and year-high to a surge in institutional demand. This was evident from the significant inflows into large wallets and a spike in CME Bitcoin futures predominantly used by institutions.

Potential Future Downturn

However, this institution-driven rally might be nearing its end. The Guppy indicator, which previously triggered a 70% Bitcoin rally in late 2023, is now indicating a potential bearish downturn.

Closure of the 2022-2023 Crypto Winter Crises

The ARK report additionally observes that most of the crypto winter crises between 2022-2023 have come to an end. FTXFTX$3.28 -5.38% recently announced plans to fully repay creditors, while Celsius plans to distribute $3 billion and equity allocation in a new venture as part of its bankruptcy resolution.

Edited by Jonathan Stoker

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