If you held some bitcoin in your 60/40 portfolio back in 2014, you might have gotten a nice lift from the then-shadowy cryptocurrency, according to a Citi analysis of bitcoin returns. Based on a 1-year rolling analysis dating back to 2014, Citi found that a U.S. portfolio that’s split 60% toward stocks and 40% in bonds would see a return of 6.95%. That return rose to 7.42% when analysts added a 1% allocation toward bitcoin. When committing 5% of the portfolio to the flagship cryptocurrency, that return rose to 9.3%, Citi analyst Alex Saunders said in a recent note. “Historically speaking, an allocation to Bitcoin would have enhanced portfolio returns,” Saunders said in an Oct. 20 report. The firm also determined that to justify a 5% bitcoin allocation to a 60/40 portfolio, the cryptocurrency would need to generate annualized returns of 12% to 16%. The hurdle isn’t as high for a 1% allocation toward the flagship crypto, as it would need to generate an 8% to 10% annualized return. However, there are risks that come with adding the cryptocurrency to an otherwise balanced portfolio. For instance, bitcoin’s correlation with other asset classes has grown over time. Citi’s analysis found that bitcoin tends to rally when the U.S. dollar weakens and that rough patches for stocks tend to coincide with falling returns for the cryptocurrency. “As crypto market cap has grown, so too have equity betas and the percentage of the variation in returns that can be explained by macro factors,” Saunders added. “Crypto also tends to deliver poor returns in the worst equity months.” After hitting an all-time high of about $60,000 in 2021, the price of bitcoin suffered from rising rates and several industry failures in 2022. While it’s currently 90% above its low of last year, bitcoin continues to suffer from low trading volume and liquidity. — CNBC’s Michael Bloom contributed reporting.
Citi analysis shows 60/40 portfolio could’ve been helped with bitcoin
