According to ARK Invest’s yearly research report, institutional portfolios with the goal of maximising risk-adjusted returns in 2023 ought to have included 19.4% of Bitcoin.
Bitcoin has historically outperformed other major assets, according to a 2023 research paper from ARK Invest, a prominent player in the Bitcoin industry.
ARK Invest also recommends an institutional portfolio allocation as high as 19.4% to maximize risk-adjusted returns.
The investment management company released its annual report on January 31st. In it, the study findings pertaining to the confluence of blockchain, AI, robots, and energy storage are presented.
The paper dedicates a large amount of space to discussing the allocation of Bitcoin portfolios, the history of the leading cryptocurrency since its launch, and a closer look at its metrics throughout the last three years.
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Data from ARK illustrates how well Bitcoin has performed over longer periods of time when compared to other significant traditional financial assets.
While other big assets averaged 5.7% over the last seven years, Bitcoin’s annualised return was 44% on average.
The analysts point out that long-term asset ownership has paid off for Bitcoin investors with “long-term time horizons.”
According to the paper, short-term price fluctuations caused by Bitcoin’s historical volatility may obscure long-term returns:
For how long?’ is a better question to ask than ‘when.’ Regardless of when they made their purchases, investors who have owned bitcoin for at least five years have historically made money.
According to ARK’s study, which examines the return and volatility characteristics of conventional asset classes, a portfolio that seeks to maximise risk-adjusted returns in 2023 would have allocated 19.4% to Bitcoin.
Over the last ten years, this has undergone substantial transformation. According to ARK, since 2015, an allocation to Bitcoin would have maximised risk-adjusted returns on a rolling five-year basis:
Our study indicates that in 2015, 0.5% would have been the best allocation to maximise risk-adjusted returns over a 5-year time horizon. Since then, the average allocation to Bitcoin would have been 4.8% on the same basis, and 19.4% in 2023 alone.
The research conducted by ARK also takes into account a fictitious scenario in which institutional investments from the $250 trillion global investable asset base allocate 19.4% of their portfolio to Bitcoin.
The price of one Bitcoin might reach $120,000 if all assets were invested by just 1% of the global asset base.
The price of Bitcoin would reach $550,000 if the whole global investment base assigned the maximum average Sharpe ratio of 4.8% between 2015 and 2023.
After ARK has been allocated 19.4% of the total, the value of a single Bitcoin would be an astounding $2.3 million.
In order to optimise risk-adjusted returns, ARK’s research takes into account a multitude of empirical market data to determine its 19.4% Bitcoin allocation.
Its recommended allocation in prior years was more in line with other well-known financial analysts and specialists.
In January 2022, Ray Dalio repeated the billionaire investor Bill Miller’s advice that the ideal amount for a portfolio allocation to Bitcoin was between 1% and 2%.
A year prior, JPMorgan investment strategists proposed that allocating 1% of one’s portfolio to Bitcoin would function as a protective measure against swings in conventional asset classes including bonds, equities, and commodities.
In rewriting the narrative of the Bitcoin industry, ARK’s research stands out for its focus on optimizing risk-adjusted returns.
By leveraging empirical market data, ARK determines a significant 19.4% allocation to Bitcoin, a departure from prior recommendations by other financial analysts.
Notably, in January 2022, renowned investor Ray Dalio echoed advice from billionaire Bill Miller, suggesting a modest 1% to 2% allocation to Bitcoin in portfolios.
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This conservative approach contrasts with ARK’s more bullish stance.
Similarly, JPMorgan investment strategists advocated for a 1% portfolio allocation to Bitcoin as a hedge against volatility in traditional asset classes such as bonds, equities, and commodities.
While differing perspectives exist on the ideal Bitcoin allocation, ARK’s data-driven approach underscores the evolving landscape of cryptocurrency investment strategies.
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