BlackRock, the world’s largest asset manager, has announced its decision to include Bitcoin (BTC) in its model-portfolio universe valued at $150 billion. The firm plans to allocate between 1% to 2% to the $48 billion iShares Bitcoin Trust ETF (ticker IBIT) within its target allocation portfolios that accommodate alternative investments.
This move, reported by Bloomberg, opens a new channel of potential demand for Bitcoin at a time when overall cryptocurrency sentiment has been waning.
Long-Term Value Of Bitcoin Investments
As Bitcoin prices have recently experienced a sharp decline—trading around $85,000 after peaking near $110,000 last month—BlackRock’s decision to incorporate Bitcoin reflects a calculated approach to managing portfolio risk.
Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite, expressed this sentiment in an investment commentary dated February 27.
“We believe Bitcoin has long-term investment merit and can potentially provide unique and additive sources of diversification to portfolios,” he stated.
This allocation represents a modest segment of BlackRock’s vast model portfolio business, yet it could lead to substantial inflows into IBIT, particularly as model portfolios—bundled investment strategies designed for financial advisers—continue to gain popularity.
The rationale behind the 1% to 2% allocation lies in Bitcoin’s notorious volatility. In a December paper from the BlackRock Investment Institute, the firm outlined that a weighting beyond 2% could significantly elevate the overall risk profile of portfolios.
BlackRock Reduces Equity Overweight
The iShares Bitcoin Trust ETF, launched in January 2024, has seen remarkable success, boasting over $37 billion in inflows during its debut year. However, recent trends indicate a cooling appetite for cryptocurrency investments, with investors withdrawing $900 million from the fund in the past week.
Despite these withdrawals, demand from financial advisers for Bitcoin exposure within model portfolios remains robust, highlighting a desire for diversification amid challenging market conditions.
Eve Cout, head of portfolio design and solutions for US Wealth at BlackRock, noted that advisers are eager to increase their allocations to alternative assets but require guidance on sizing, scaling, and rebalancing their positions.
The addition of Bitcoin to BlackRock’s model portfolios is part of a broader strategy that includes several allocation adjustments. Given cooling earnings expectations, BlackRock has reduced its overweight position in equities from 4% to 3% and has adjusted its focus on growth versus value strategies.
This strategic realignment has resulted in significant capital flows across various BlackRock products. Notably, the iShares 10-20 Year Treasury Bond ETF (TLH) experienced a record influx of $2.3 billion, while $1.8 billion exited from the iShares 20+ Year Treasury Bond ETF (TLT).
Featured image from DALL-E, chart from TradingView.com
