Research

Considerations for including bitcoin in investment portfolios

Research from Fidelity Institutional Wealth Adviser evaluates bitcoin's potential benefits and risks, and provides a framework for asset allocation questions

By: Darby Nielson Stephen Beck Sumit Sharma
Updated: 11/4/2024
Key Takeaways
  • Advisors and investors increasingly are evaluating bitcoin as a potential investment allocation, and one of their highest priorities is how to incorporate it into a multiasset portfolio.
  • Those with conviction about bitcoin’s potential are looking at exposure for several potential investment purposes, including return enhancement, diversification, and as an inflation hedge; however, many are unsure how to proceed given bitcoin’s limited performance history and volatility.
  • In this paper, Fidelity Institutional Wealth Adviser conducted returns, volatility, and correlation analysis of bitcoin relative to stocks, bonds, and gold to test its potential benefits within the context of a 60/40 stocks/bonds portfolio.
  • We found that bitcoin has behaved as a high-beta investment that has offered some return-enhancing properties, but small allocations could contribute exponential risk to a 60/40 portfolio.
  • Bitcoin has also offered some diversification benefits, although correlations have varied. Its correlation to changing inflation has been increasing almost to the level of equities.
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Diversification and asset allocation do not ensure a profit or guarantee against loss.

Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or a solicitation to buy or sell any securities. Views expressed are as of March 2024, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Digital assets are speculative and highly volatile, can become illiquid at any time, are for investors with a high risk tolerance, and who have the experience and ability to evaluate the risks and merits of an investment. Investors in digital assets could lose the entire value of their investment. Digital assets are not insured by the Federal Deposit Insurance Corporation (FDIC) or protected by the Securities Investor Protection Corporation (SIPC).

The price of bitcoin is volatile, and market movements of bitcoin are difficult to predict. Supply and demand changes rapidly and is affected by a variety of factors, including regulation and general economic trends.

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