Bitcoin ETF

Bitcoin

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A 2023 research report from ARK Invest highlights Bitcoin’s historical outperformance of major assets and suggests an institutional portfolio allocation as high as 19.4% to maximize risk-adjusted returns.
The investment management firm <a href="https://assets.arkinvest.com/media-8e522a83-1b23-4d58-a202-792712f8d2d3/753ac3f8-c89c-4780-81d2-41a2a71d66ab/ARK-Invest_013124_Big-Ideas-2024.pdf" target="_blank" rel="noopener nofollow">published</a>&nbsp;its annual report on Jan. 31, which presents various research findings focused on the technological convergence of blockchain technology, artificial intelligence, energy storage and robotics.
Related:&nbsp;<a href="https://cointelegraph.com/news/bitcoin-now-public-good-ark-invest-president">Bitcoin is now a ‘public good’ — ARK Invest president</a>
A significant portion of the report is focused on Bitcoin (<a href="https://cointelegraph.com/bitcoin-price">BTC</a>) portfolio allocation, the performance of the preeminent cryptocurrency since its inception and a more focused perspective on its metrics over the past three years.
<h3 data-ct-non-breakable="true" id="bitcoin-s-long-term-performance">Bitcoin’s long-term performance</h3>
ARK presents data that reflects Bitcoin’s superior performance against other major traditional investment assets over longer time frames. Over the past seven years, Bitcoin’s annualized return averaged 44%, while other major assets averaged 5.7%.
<figure data-ct-non-breakable="true">
 <img src="https://s3.cointelegraph.com/uploads/2024-02/c03e2674-8c0a-4015-9be3-fd284b4039f0.png" alt="" title="">
 <figcaption style="text-align: center;">
 A comparison of Bitcoin’s annualized returns against major asset classes. Source: ARK Invest
 </figcaption>
</figure>
The analysts note that Bitcoin investors with “long-term time horizons” have benefitted from holding the asset for extended periods. The report contends that Bitcoin’s historical volatility can obfuscate long-term returns due to short-term rises and falls in value:
<blockquote data-ct-non-breakable="true">
 “Instead of ‘when,’ the better question is ‘for how long?’ Historically, investors who bought and held bitcoin for at least 5 years have profited, no matter when they made their purchases.”
</blockquote>
ARK’s research delves into the volatility and return profiles of traditional asset classes and suggests that a portfolio aiming for maximized risk-adjusted returns would have allocated 19.4% to Bitcoin in 2023.
Related:&nbsp;<a href="https://cointelegraph.com/news/ark-invest-files-bitcoin-etf-registration-alongside-industry-peers">ARK Invest files for Bitcoin ETF registration alongside industry peers</a>
This has changed significantly over the past decade. ARK notes that on a five-year rolling basis, an allocation to Bitcoin would have maximized risk-adjusted returns since 2015:
<blockquote data-ct-non-breakable="true">
 “According to our analysis, in 2015, the optimal allocation to maximize risk-adjusted returns on a 5-year time horizon would have been 0.5%. Since then, on the same basis, the average allocation to Bitcoin would have been 4.8%, and in 2023 alone, 19.4%.”
</blockquote>
<h3 data-ct-non-breakable="true" id="2-3-million-per-bitcoin">$2.3 million per Bitcoin?</h3>
ARK’s research also considers a hypothetical situation where institutional investments from the $250 trillion global investable asset base follow its 19.4% Bitcoin portfolio allocation.
<figure data-ct-non-breakable="true">
 <img src="https://s3.cointelegraph.com/uploads/2024-02/84180747-de86-4b9a-9336-e5f7dfd8eca7.png" alt="" title="">
 <figcaption style="text-align: center;">
 Three potential Bitcoin valuations considering global institutional investment into BTC at 1%, 4.8% and 19.4%. Source: ARK Invest
 </figcaption>
</figure>
If the global asset base invested just 1% of assets, Bitcoin’s price could reach $120,000 per BTC. If the global investment base allocated the 4.8% average maximum Sharpe ratio from 2015 to 2023, Bitcoin’s price would reach $550,000.&nbsp;Following ARK’s 19.4% allocation, Bitcoin would be valued at a staggering $2.3 million per coin.
<h3 data-ct-non-breakable="true" id="changing-bitcoin-investment-narratives">Changing Bitcoin investment narratives</h3>
ARK’s research considers a wealth of empirical market data to arrive at its 19.4% Bitcoin allocation to maximize risk-adjusted returns. In previous years, its prescribed allocation was more in tune with other prominent investment analysts and experts.
In January 2022, Ray Dalio <a href="https://cointelegraph.com/news/billionaire-ray-dalio-recommends-reasonable-1-2-bitcoin-allocation">echoed the sentiments</a> of billionaire investor Bill Miller that a portfolio allocation of 1% to 2% into Bitcoin was an optimal figure. A year earlier, investment strategists at JPMorgan <a href="https://cointelegraph.com/news/jpmorgan-report-endorses-1-allocation-to-bitcoin-as-a-hedge"></a><a href="https://cointelegraph.com/news/jpmorgan-report-endorses-1-allocation-to-bitcoin-as-a-hedge">suggested that a 1% portfolio allocation</a> to Bitcoin would serve as a hedge against fluctuations in traditional asset classes such as stocks, bonds and commodities.
Magazine:&nbsp;<a href="https://cointelegraph.com/magazine/big-questions-can-bitcoin-payments-make-a-comeback/">Big Questions: How can Bitcoin payments stage a comeback?</a>

19.4% Bitcoin portfolio allocation ideal for risk-adjusted returns — ARK Invest

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