Nickel: Adding Bitcoin to balanced portfolios has significant positive effect

November 14, 2024

Asset Allocation Bitcoin

The strategic inclusion of a small proportion of digital assets in balanced portfolios results in a significant positive effect on the portfolio, without materially impacting its risk profile, new statistical analysisby London-based Nickel Digital Asset Management (Nickel) shows.

Its study modelled the impact of adding 1%, 3% and 5% Bitcoin to a standard 60%/40% equities and bonds institutional portfolio over the period from December 31^st 2012 to September 30^th 2024 with daily rebalancing to maintain targeted allocations.

Over the period the standard 60%/40% portfolio produced cumulative returns of 199% compared with 231% for a 59% equities/40% bonds/1% Bitcoin portfolio. Cumulative returns for 57% equities/40% bonds/3% Bitcoin portfolio rose to 306% and to 396% for a 55% equities/40% bonds/5% Bitcoin portfolio.

The above approach is designed around daily rebalancing of Bitcoin allocation to maintain target portfolio weighting at 1%, 3% or 5% level. Leaving allocation without periodic adjustment would have resulted in an even higher returns but would introduced an unwanted volatility to the portfolio.

Nickel Digital’s research shows growing confidence in digital assets from institutional investors – more than a third (35%) believe crypto will become part of institutional investors’ portfolio allocation within three years with 5% predicting it will happen within a year. Around 65%, however, do not expect that to happen for three years or more.