For Risk-Tolerant Investors, Spot Bitcoin ETFs Could Help a Traditional Portfolio
Registered investment advisors have long leaned on the 60% equities/40% fixed income portfolio structure. While it’s not perfect, it has served clients well, broadly speaking. But if an entire portfolio is allocated to just two asset classes, there’s no room for alternative assets. Alts can provide critical elements of diversification and upside potential. Those assets can include bitcoin ETFs.
Bitcoin is now easier to include in basic portfolios thanks to the recent debuts of spot bitcoin exchange traded funds, including the Invesco Galaxy Bitcoin ETF (BTCO).
Funds such as BTCO further democratize access to the largest cryptocurrency. And they open the door to broader adoption among advisors. They could potentially be implemented into 60/40 portfolios.
Risk Tolerance Is Key for Your Portfolio
As advisors know, one of the key purposes of a 60/40 portfolio is for the fixed income sleeve to defray some of the risk associated with equities. That actually accounts for far more than 60% of the portfolio’s risk.
By adding BTCO or a comparable ETF to these portfolios, it’s reasonable to surmise volatility will increase. As such, spot bitcoin ETFs are not suitable for all clients. For those wanting exposure to digital currencies, getting the size right is critical.
“A small dose of 1% or 2% bitcoin doesn’t have a big impact on your portfolio. At these levels, bitcoin contributes roughly 3% and 7% of total risk, respectively, and results in a minimal change to overall volatility,” noted Morningstar analyst Stephen Margaria.