What role does Bitcoin play in the investment portfolio?

In the U.S. cryptocurrency industry, there is a buzzword-“If your financial adviser has not recommended Bitcoin, then fire them.” This radical statement naturally caused considerable controversy. So, for now, what role can Bitcoin play in the investment portfolio?

Digital gold

Bitcoin is often compared to “digital gold.” The role of gold in history is to protect wealth. The reason why gold can remain attractive is that it has long-standing purchasing power. Compared with legal tender, gold depreciates slowly so that people can pass on the wealth of gold from generation to generation. If you only hold Bitcoin as a commodity that replaces gold, Dalio, the founder of Bridgewater Fund, suggests that Bitcoin should be allocated with a weight of 7.5%.

Core-satellite strategy

The “core-satellite strategy” is a fund’s asset allocation strategy. Generally speaking, it is to divide the stock assets of the fund into two parts. Each part is composed of different investment portfolios. One of the parts occupies a more significant weight in the entire investment portfolio, which is essential for the safety and income of the entire investment portfolio to protect the role of escort, it is called the core; the other part occupies a slightly smaller weight in the entire investment portfolio, it can have a broader investment space, investment is more active, more active, more flexible, and often can get people Surprise harvest.

The “core-satellite strategy” goal covers a broad market, but as a supplement, it is necessary to allocate 10%-20% of funds among assets that may have outstanding performance. Bitcoin is the fastest-growing asset in the past decade, so it fits this statement.

Generally speaking, once a mainstream digital network exceeds the market value of 100 billion US dollars, it will survive for a long time. The market value of Bitcoin now exceeds $840 billion. In this growth strategy, it is recommended to allocate up to 10% of the weight of Bitcoin.

Credit Insurance

Greg Foss, a veteran trader with more than 30 years of experience in the high-yield credit market, recently issued an article to clarify the contagion and cascading risks in the credit market, saying that the most significant risk today lies in the credit market, so for ordinary investors, the risk is often Is hidden. From this perspective, Bitcoin can act as default insurance for fixed-income investors.

It now appears that people have not learned the lessons of the 2008 Guaranteed Debt Certificate Crisis. As everyone is chasing yields in a world of low-interest rates, this crisis is becoming looser in bond holding credit ratings that are re-accumulated under the environment.

As more and more investors understand counterparty risks, Bitcoin will gain more funds. For customers whose 60% are stocks and 40% are bonds, the allocation proposal for Bitcoin is a 5% weight of their bond exposure.

100 more years of portfolio allocation

Chris Cole from Artemis Asset Management has written a research paper on inflation. Cole advocates that everyone build a portfolio that can last for 100 years so that they don’t need to care about how the market performs in any given cycle. The investment portfolio construction must be flexible and provide diversified configurations, including stocks, bonds, commodity trends, gold, and long volatility. The weight of each item is between 18% and 24%, so this is almost an equal Weights method. All these assets cancel each other out to form a unique and independent rate of return output.

To avoid a large correction in the single market, compound allocation is the best long-term investment portfolio. According to Cole’s research, it is very likely that Bitcoin will replace gold in the future. Therefore, Bitcoin can be included in the long-term portfolio style configuration and has a relatively independent trend. In this portfolio, the recommended Bitcoin allocation weight is 19%.

Invest in Bitcoin-related company stocks

If investors are unwilling to own Bitcoin directly and don’t want to pay the 2% fee for GBTC, how can they find a way to access Bitcoin without owning a Bitcoin wallet? Just add Bitcoin mining stocks or other Bitcoin company stocks to the balance sheet.

The most famous company with a Bitcoin balance sheet is MicroStrategy, led by Michael Saylor. Investing in such companies is equivalent to having corresponding exposure to Bitcoin without directly owning Bitcoin. Although such company equity is not a 1:1 substitute for Bitcoin, it is discreet and a transition plan for investors before accepting direct Bitcoin holdings. In this case, the recommendation is to weigh each Bitcoin-related company no more than 5% of the investment portfolio.


The above narrative provides various reasons and different conclusions about the appropriate weight of Bitcoin holdings for customers. When making a financial plan, investors may need to consider some extreme situations. If Bitcoin is allocated in the portfolio, even a little weight can play an essential hedging effect on the above assumptions.

The role of financial planning should be to provide a stable mindset and certainty. Unfortunately, many investors tend to become too conservative too quickly, which often jeopardizes the success of their investment portfolios. This is also true for financial advisers who refuse to review the characteristics of Bitcoin in their financial plans.

Therefore, when considering the risk of owning Bitcoin, in the long run, the risk of arranging 1% of the weight of Bitcoin in the investment portfolio is much lower than the risk of holding 0% of Bitcoin.

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