Analysts at JP Morgan are the latest to recognize bitcoin’s potential as a diversifier and a hedge, recommending its addition in investment portfolios.
“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio,” strategists including Joyce Chang and Amy Ho wrote in a note on Wednesday.
Academic papers began suggesting 1% in late 2018, but have since generally upped their recommendation to 10% for increased returns, some even going to 20%.
A number of companies that have bought bitcoin for treasury reserves have generally followed these recommendations, with Tesla’s bitcoin investment being about 5% of their cash holdings.
For Square it was just about 1%, with a number of institutional investors likewise sticking to this range.
Such allocation for diversification purposes, however, is still at perhaps even its pre-inception stage as there’s hardly more than a handful or a dozen public companies that have allocated to bitcoin.
Wedbush Securities expects less than 5% of publicly traded companies to allocate to bitcoin, that’s presumably initially with the tipping point being 10%.
If they do so, it would amount to an inflow of half a trillion as public companies are estimated to have about $10 trillion in cash reserves, excluding China.