BlackRock recommends limiting bitcoin allocation to 2% in portfolios to balance risk and diversification benefits

A recent BlackRock report suggests that investors with proper governance and risk tolerance could consider a small allocation of bitcoin in a multi-asset portfolio. The key points are:

1. Diversification Benefits: Bitcoin’s distinct value drivers and low correlation with traditional assets make it a potentially unique source of return and risk diversification.

2. Risk Budgeting Approach: Allocations should be based on bitcoin’s long-term volatility and correlation with other assets. A 1-2% allocation is optimal in a 60/40 stock-bond portfolio, as it introduces diversity without outsized portfolio risk.

3. Comparison with Mega-Cap Tech Stocks: Bitcoin’s portfolio risk contribution is likened to the “magnificent 7” tech stocks, which also carry significant weight in portfolios. However, bitcoin differs due to its lack of cash flows and reliance on adoption for value.

4. Allocation Limits: Exceeding 2% allocation to bitcoin sharply increases its risk contribution, particularly during periods of high volatility or stronger correlations with equities. Unlike tech stocks, bitcoin’s value could drop to zero if adoption falters.

5. Institutional Adoption: As institutional access to bitcoin grows, its volatility may decline, potentially allowing higher allocations. However, broader adoption could stabilize prices, limiting future gains and favoring tactical use, similar to gold.

Grayscale introduces Lido DAO and Optimism Trusts to offer Ethereum scalability and DeFi exposure

Grayscale Investments has launched the Grayscale® Lido DAO Trust and Grayscale® Optimism Trust, providing investors with exposure to the governance tokens of Lido DAO (LDO) and Optimism (OP). These products aim to enhance the Ethereum ecosystem by supporting scalability and security. Lido offers a liquid staking solution for Ethereum, while Optimism helps reduce network congestion with Layer 2 solutions. Both protocols play a key role in expanding decentralized finance (DeFi) and improving Ethereum’s efficiency. The Trusts are now available for subscription by accredited investors.

Avalanche Foundation Raises $250 Million, Prepares for Major Upgrade with Avalanche9000

The Avalanche Foundation raised $250 million in a private token sale, signaling a market rebound. Investors include Galaxy Digital, Dragonfly, and ParaFi Capital. Avalanche’s treasury holds $3 billion in AVAX, and the focus is on aligning with key partners. The foundation will launch Avalanche9000 on December 16, reducing blockchain setup costs and supporting its multi-chain vision. Avalanche’s infrastructure is gaining traction, with the game “Off The Grid” and institutional funds like BlackRock’s USD Digital Liquidity Fund moving to its platform. Investors see regulatory clarity as a key driver for crypto adoption.

Resources:

BlackRock

Grayscale

Forbes