Crypto's role in a
portfolio
The time to ignore crypto has passed: How much should a neutral investor allocate to crypto?
For many investors, cryptocurrencies are still relatively unfamiliar, and it is easy to dismiss them as this “new and untested” asset. However, with growing adoption, high-growth potential, high diversification potential and investment vehicles available worldwide, it is now virtually impossible for investors to dismiss this asset class.
Like any other asset class, investors and portfolio managers must now develop their views and assign cryptocurrencies an “underweight” or “overweight” rating. Cryptocurrencies such as bitcoin have existed for over 15 years and have stood up to the test of time and multiple boom-and-bust cycles. They are now a fully established asset class that warrants a place in multi-asset portfolios.
“Not allocating to crypto is no longer the default decision and the potential cost of actively underweighting it is high”
Cryptocurrencies in the market portfolio: The neutral allocation
A good assessment of an asset's neutral positioning in a multi-asset portfolio is to look at the market portfolio, i.e., the portfolio that simulates the totality of all listed, investable assets accessible to investors. Figure 1 showcases the current market portfolio.
The total market capitalisation of listed, investable assets is over $200 trillion. With a market cap of over $3 trillion, cryptocurrencies represent around 1.5% of the market portfolio. This means the crypto asset class is now similar in size to high-yield bonds, Inflation-linked bonds, and emerging markets small-cap equities.
The market portfolio
Source: Bloomberg, WisdomTree. Data as of 31 December 2024. Market caps are shown in USD billion. Historical performance is not an indication of future performance, and any investment may go down in value.
In other words, the neutral position for multi-asset portfolios is to invest roughly 1.5% in cryptocurrencies. 1.5% is the rational choice for investors without a strong, supported investment thesis against cryptocurrencies. It has also been shown that integrating cryptocurrencies into diversified multi-asset portfolios offers potential benefits in enhancing their risk/return profile.
A 0% allocation in cryptocurrencies is a strong underweight, and investors who decide to express such a bearish view in this new asset class should have a strong case to back it up.
Why should cryptocurrencies be part of a multi-asset portfolio?
*Source: Bloomberg, WisdomTree. From 31 December 2013 to 31 December 2024.
A correlation heatmap on USD monthly returns between bitcoin and other asset classes
Source: Bloomberg, WisdomTree. From 31 December 2013 to 31 December 2024. In USD. Based on Weekly Returns. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investment may go down in value.
The impact of adding 1% of bitcoin to a 60/40 portfolio
Even a small allocation to bitcoin in a 60/40 portfolio (60% in global equities and 40% in global government and corporate bonds) would have yielded very strong results historically. With 1% of bitcoin, the performance would have increased by 0.68% per year (since 2013) at the cost of only 0.07% of higher volatility. Read our research paper for more details.
Source: Bloomberg, WisdomTree. From 31 December 2013 to 31 December 2024. In USD. Based on daily returns. You cannot invest directly in an index. Historical performance is not an indication of future performance and any investment may go down in value. For illustrative purposes only.
Discover our physical crypto ETPs
Cryptocurrency ETFs and ETPs have bridged the gap between traditional investment vehicles and a growing asset class. WisdomTree was the first established ETP issuer to provide European investors with institutional-grade physically backed crypto exposure, following the launch of the WisdomTree Physical Bitcoin ETP in December 2019. Today, we offer a range of nine physically backed crypto ETPs that provide secure and low-cost access to individual cryptocurrencies and diversified baskets.