ARK Invest’s latest research report for 2023 emphasizes Bitcoin’s exceptional historical performance compared to major assets and recommends an institutional portfolio allocation of up to 19.4% to optimize risk-adjusted returns.
Released on January 31st, the annual report explores the convergence of blockchain technology, artificial intelligence, energy storage, and robotics.
A substantial portion of the report focuses on Bitcoin portfolio allocation, tracing its performance since inception and scrutinizing its metrics over the past three years.
Long-term Performance:
ARK’s data reveals Bitcoin’s remarkable performance over extended periods, outshining traditional assets. Over seven years, Bitcoin boasted an annualized return averaging 44%, while other major assets averaged just 5.7%.
The report notes that investors with a “long-term time horizon” benefited significantly from holding Bitcoin for extended periods, as its historical volatility often masked its long-term profitability.
Optimal Allocation:
The report delves into the volatility and return profiles of traditional asset classes, suggesting that a portfolio aiming for maximized risk-adjusted returns would have allocated 19.4% to Bitcoin in 2023.
This represents a significant change over the past decade, with the optimal allocation varying from 0.5% in 2015 to 19.4% in 2023 on a five-year rolling basis.
Potential Valuations:
ARK’s research contemplates a hypothetical scenario in which institutional investments from the $250 trillion global investable asset base follow the recommended 19.4% Bitcoin allocation.
If just 1% of global assets were invested, Bitcoin’s price could reach $120,000 per BTC. Allocating the 4.8% average maximum Sharpe ratio from 2015 to 2023 could drive Bitcoin’s price to $550,000.
Following ARK’s 19.4% allocation, Bitcoin could reach an astounding $2.3 million per coin.
ARK’s research draws on empirical market data to justify its 19.4% Bitcoin allocation for risk-adjusted returns, a shift from previous years’ recommendations.
In January 2022, figures like Ray Dalio and Bill Miller suggested a portfolio allocation of 1% to 2% in Bitcoin.
A year earlier, JPMorgan’s investment strategists proposed a 1% portfolio allocation to Bitcoin as a hedge against fluctuations in traditional assets like stocks, bonds, and commodities.
ARK Invest’s report underscores Bitcoin’s evolving role as a viable and potentially lucrative asset class in institutional portfolios, reflecting the growing acceptance and recognition of cryptocurrencies in the broader financial landscape.
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