BlackRock: “The optimal BTC allocation is a large 84.9%”

[HeRetiK]

I tried reading the entire paper but because of my very limited comprehension capacity of the technicalities the authors were talking about, I decided not to continue.

I assume those who cherry-picked didn't also thoroughly understand the paper. They spread the cherry-picked lines, nonetheless. OP is one of them. There are many others in social media who did the same. Even those who I think are capable of separating the wheat from the chaff are equally irresponsible for spreading it. 

Worse, they are putting words in BlackRock's mouth. This isn't BlacRock's opinion. This is not a study done by BlackRock. BlackRock has nothing to do with it. Those who started spreading this fake news are just using the huge brand to create a baseless FOMO.

To be fair the paper is by a team entirely of BlackRock employees, with full disclosure of them working for BlackRock to the point that it even includes BlackRock's boilerplate disclaimer appendix, including copyright notice. So while it's not BlackRock's official opinion, it does indeed appear to be sanctioned by the company, at least to some extend. Either way, I don't think you'll ever find a company like BlackRock taking an official stance outside of carefully constructed messaging. Their CEO could say that the sky is blue and it would still come with the disclaimer that his views are his alone and do not express the views of BlackRock.

That being said, this kind of sensationalism does, in my opinion, not help Bitcoin's image. It's a stupidly high allocation that no one that isn't already convinced of crypto would take serious. Heck, even within crypto you'd probably be at the bleeding edge with this kind of allocation -- though admittedly, without active reallocation, Bitcoin tends to take portfolios over all by itself.

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[Mauser]

"Starting with 60-40 equity-bond portfolio, which is produced with a risk aversion of gamma=1.5, the optimal BTC allocation is a large 84.9%"

I don't understand, how do you add crypto currencies to a 60/40 stocks/bond portfolio? Isn't it already at a 100, where do we get the 84.9% for Bitcoins from? To me this number seems really high. Blackrock is the largest ETF company in the world and the main selling point of ETFs is to buy the index as it's cheap and offers a high level of diversification. Putting now almost everything into one investment seems very risky. And how do you come up with a fixed investment in Bitcoin of 2-3 BTC? Shouldn't the number be a percentage based on our total portfolio or net worth? The more money I have the more I would also put in bitcoins. Nothing wrong with owning 10 BTC if you are a millionaire.

[HeRetiK]

I don't understand, how do you add crypto currencies to a 60/40 stocks/bond portfolio? Isn't it already at a 100, where do we get the 84.9% for Bitcoins from?

By reducing the positions held in stocks and bonds:

Starting with a 60-40 equity-bond portfolio, which is produced with a risk aversion of 𝛾 = 1.50, the optimal BTC allocation is a large 84.9%! The remainder of the portfolio, 15.1% is split 60-40 between equities and bonds.

To me this number seems really high.

It is, and if you look at the paper itself you'll see it's just one particular way of modelling optimal exposure. Another model that they use in the paper comes to a more conventional conclusion of 9.5%.

Blackrock is the largest ETF company in the world and the main selling point of ETFs is to buy the index as it's cheap and offers a high level of diversification. Putting now almost everything into one investment seems very risky.

While BlackRock's ETFs offer diversification, it's still up to the individual investors themselves to stay reasonably diversified. If their filing for a Bitcoin ETF succeeds, it won't matter for BlackRock how your portfolio structured, as long as it contains ETFs on which they make money.

[KalOlak]

While BlackRock's ETFs offer diversification, it's still up to the individual investors themselves to stay reasonably diversified. If their filing for a Bitcoin ETF succeeds, it won't matter for BlackRock how your portfolio structured, as long as it contains ETFs on which they make money.

In fact, even a company like BlackRock has no idea what the price of Bitcoin will be in a year or ten years from now. Their strategy in this game is extremely simple - to collect fees from retail investors. Therefore, if the retail sector actively participates in this game, BlackRock will earn Bitcoin through fees from the players' trades. If the retail sector doesn't actively engage in the game, BlackRock won't lose anything. That's their strategy.

For example, if their fee constitutes 0.1% per trade of this ETF, and the trading volume of this ETF over 10 years reach 210,000,000 Bitcoins, then BlackRock's profit could end up being 210,000 Bitcoins after 10 years. However, I believe their fees will be much higher.

[Ariaryanto]

I don't understand, how do you add crypto currencies to a 60/40 stocks/bond portfolio? Isn't it already at a 100, where do we get the 84.9% for Bitcoins from?

By reducing the positions held in stocks and bonds:

Starting with a 60-40 equity-bond portfolio, which is produced with a risk aversion of 𝛾 = 1.50, the optimal BTC allocation is a large 84.9%! The remainder of the portfolio, 15.1% is split 60-40 between equities and bonds.

To me this number seems really high.

It is, and if you look at the paper itself you'll see it's just one particular way of modelling optimal exposure. Another model that they use in the paper comes to a more conventional conclusion of 9.5%.

Blackrock is the largest ETF company in the world and the main selling point of ETFs is to buy the index as it's cheap and offers a high level of diversification. Putting now almost everything into one investment seems very risky.

While BlackRock's ETFs offer diversification, it's still up to the individual investors themselves to stay reasonably diversified. If their filing for a Bitcoin ETF succeeds, it won't matter for BlackRock how your portfolio structured, as long as it contains ETFs on which they make money.

maybe from us giving each other directions we can become more broadly aware of the world of crypto, pliers where now in the future the world will become modern and make technology one of the fastest trading places.

[franky1]

By reducing the positions held in stocks and bonds:

Starting with a 60-40 equity-bond portfolio, which is produced with a risk aversion of 𝛾 = 1.50, the optimal BTC allocation is a large 84.9%! The remainder of the portfolio, 15.1% is split 60-40 between equities and bonds.

that linked article had many exampled positions with many different allocation amounts.. picking just the highest("EXTREME") mentioned is not what blackrock concludes.. their actual conclusion is a 3% position of btc allocation not 84.9%
also reading through other commercial banks desires to hoard bitcoin via the BIS settlement network agreements. they too want more then 2% but less than 5% ability to hoard BTC

and if you ever look at any investment institution none of them have high % hoarding of one asset. they all spread their eggs across many baskets with a sub 5% hoarding per 'egg'

[takuma sato]

By reducing the positions held in stocks and bonds:

Starting with a 60-40 equity-bond portfolio, which is produced with a risk aversion of 𝛾 = 1.50, the optimal BTC allocation is a large 84.9%! The remainder of the portfolio, 15.1% is split 60-40 between equities and bonds.

that linked article had many exampled positions with many different allocation amounts.. picking just the highest("EXTREME") mentioned is not what blackrock concludes.. their actual conclusion is a 3% position of btc allocation not 84.9%
also reading through other commercial banks desires to hoard bitcoin via the BIS settlement network agreements. they too want more then 2% but less than 5% ability to hoard BTC

and if you ever look at any investment institution none of them have high % hoarding of one asset. they all spread their eggs across many baskets with a sub 5% hoarding per 'egg'

The question is how is this going to affect the price? 2-5% on these entities portfolios I assume is quite a lot of money dumped into BTC. The problem is, if (when) the recession hits, im not sure if it's a good idea to own BTC, so far it has just acted as SP500 on steroids, so a high risk asset (this is what BTC is considered still by most) would crash bigly, and these banks have customers and these customers wouldn't be happy.

[Ale88]

Before even starting a discussion on the statement I would like to discuss the originator of the statement, Blackrock itself.

Same Blackrock involved in $4B investment scandal with CEO and portfolio manager all involved.

My question is not about if bankers are good or bad, I don't care if I think they are bad. My question is, for someone who has history of making terrible investment advices, why should we listen to them about Bitcoin?

Those statements are not for us, and by us I mean bitcoiners, but are made for their investors. Does anyone really think that Blackrock cares about bitcoin, privacy, decentralization or other stuff like that? Of course not but if they sell their ETFs to their customers they are getting their commission, as simple as that. For them bitcoin is just another way to make money, we could be talking about shells or stones, it would be the same.

[LoyceV]

If you read the paper, the number quoted by OP (and various crypto-news outlets) is not even the conclusion. It's just the cherry picked result of one of two mathematical asset allocation models being applied to Bitcoin.

I saw already saw OP's title in the WO-thread, and checked the source. I tried to read it, but didn't understand most of it.
My gut feeling was that it is indeed cherry picked, and I'm pretty sure both BlackRock and the authors don't invest 85% in Bitcoin.

This is what the paper shows on top of each page:

FOR PROFESSIONAL, INSTITUTIONAL, QUALIFED, WHOLESALE INVESTORS AND PERMITTED,
PROFESSIONAL AND QUALIFIED CLIENT USE ONLY
– NOT FOR PUBLIC DISTRIBUTION (PLEASE READ IMPORTANT DISCLOSURES)

That explains why I don't understand it. This article isn't meant for me, you, OP or even Bitcointalk. It means nothing.

[two.625]

that linked article had many exampled positions with many different allocation amounts.. picking just the highest("EXTREME") mentioned is not what blackrock concludes.. their actual conclusion is a 3% position of btc allocation not 84.9%
also reading through other commercial banks desires to hoard bitcoin via the BIS settlement network agreements. they too want more then 2% but less than 5% ability to hoard BTC

and if you ever look at any investment institution none of them have high % hoarding of one asset. they all spread their eggs across many baskets with a sub 5% hoarding per 'egg'

The composition of Berkshire Hathaway's top 10 holdings of US stocks has changed, but Apple continues to make up nearly 50% of the portfolio.

[masyari]

Media like clickbait articles and headers too much. It's obvious for anyone that 84.9 may be too big even for crypto believers

[two.625]

Media like clickbait articles and headers too much. It's obvious for anyone that 84.9 may be too big even for crypto believers

It all depends on your strategy and risk appetite. If you think that converting 84.9% of your capital into Bitcoin 13 years ago was too big, then I'm afraid you might not have mastered basic mathematics in school.

[LoyceV]

It all depends on your strategy and risk appetite. If you think that converting 84.9% of your capital into Bitcoin 13 years ago was too big, then I'm afraid you might not have mastered basic mathematics in school.

If you got Bitcoin 13 years ago, it turned into 85% (or more) of your capital on it's own.

[slaman29]

Before even starting a discussion on the statement I would like to discuss the originator of the statement, Blackrock itself.

Same Blackrock involved in $4B investment scandal with CEO and portfolio manager all involved.

My question is not about if bankers are good or bad, I don't care if I think they are bad. My question is, for someone who has history of making terrible investment advices, why should we listen to them about Bitcoin?

Those statements are not for us, and by us I mean bitcoiners, but are made for their investors. Does anyone really think that Blackrock cares about bitcoin, privacy, decentralization or other stuff like that? Of course not but if they sell their ETFs to their customers they are getting their commission, as simple as that. For them bitcoin is just another way to make money, we could be talking about shells or stones, it would be the same.

Well, BlackRock doesn't have to care for any of that for it to mean anything. Lets say they actually do care, so what? Lets be objective and see that they've made so many big financial mistakes in the past that we should question the validity of their current and future actions.

I'm noy discriminating anyone based on their Bitcoin belief. Plenty of people genuinely thought they cared but that doesn't make them affect Bitcoin price.

[tw0.625]

Well, BlackRock doesn't have to care for any of that for it to mean anything. Lets say they actually do care, so what? Lets be objective and see that they've made so many big financial mistakes in the past that we should question the validity of their current and future actions.

I'm noy discriminating anyone based on their Bitcoin belief. Plenty of people genuinely thought they cared but that doesn't make them affect Bitcoin price.

BlackRock is the world's largest asset manager with ~$10 trillion currently in its portfolio.

[retreat]

-snip-

A simple thought experiment can show that if Satoshi had kept all 21 million Bitcoins to himself and never shared this idea with anyone, the value of Bitcoin would be zero.

discuss

That makes sense because something of value is measured by its features, usability, demand and rarity. So when Satoshi introduced Bitcoin to the public, that's where the public will evaluate Bitcoin, whether it's worth it or not, it turns out that the market response was very good to the presence of Bitcoin and the price of Bitcoin began to increase.
And moreover, if only Satoshi had not made Bitcoin public, not only would the value of Bitcoin be zero, but also the cryptocurrency market would not exist and we would have no alternative for our transactions.