ARK Invest Says Optimal Bitcoin Portfolio Allocation for 2023 Was 19.4%

Bitcoin (BTC) is an effective diversifier and counterbalance to traditional asset classes, and an optimal allocation in one’s investment portfolio is just under 20%, Cathie Wood’s ARK Invest wrote in its annual Big Ideas report for 2024.

“Over the last seven years, Bitcoin has registered an annualized return far surpassing that of major asset classes, with an optimal allocation rising to 19.4% in 2023,” the firm wrote. “Our analysis suggests that allocating 19.4% to Bitcoin in 2023 would have maximized a portfolio’s risk-adjusted returns.”

The optimum allocation was 0.5% in 2015 and 6.2% in 2022.

“Bitcoin is not just a new investment option but a vital component for diversifying investment portfolios, offering unprecedented growth potential among digital assets,” the firm added.

Bitcoin’s low five-year correlation of 0.27 with traditional assets underscores its diversification benefits, and even minimal allocations by institutional investors could notably influence its price, given the vast $250 trillion global investable asset base, ARK writes.

The leading cryptocurrency by market value is up 77.8% over the last year, according to CoinDesk Indices data.

In a recent report, JPMorgan attributed bitcoin’s recent outperformance and year-high to increased institutional demand, highlighted by significant inflows into large wallets and a spike in CME bitcoin futures used predominantly by institutions.

However, this institutional-driven rally might be coming to a close. The Guppy indicator, which sparked a 70% Bitcoin rally in late 2023, is now signaling a potential bearish downturn.

The ARK report also notes that most of the 2022-2023 crypto winter crises have come to a close. FTX recently announced that it plans to fully re-pay creditors, while Celsius will be distributing $3 billion and equity allocation in a new venture as part of its bankruptcy resolution.