What percentage of your portfolio should be crypto? HSBC has the answer

With Bitcoin and other cryptocurrencies soaring in recent months, analysts at HSBC assessed the percentage of a portfolio that should be allocated to crypto.

Some of the dynamics that have helped boost crypto prices include the Bitcoin ETF approval and inflows into the ETFs, as well as the upcoming Bitcoin Halving, which many analysts state usually prompts a rally not too long after.

In its note, HSBC revisited the role crypto could play in multi-asset allocations, highlighting that a little over two years ago, it found strong statistical evidence that an allocation to crypto can help diversify multi-asset allocations.

"This looks to still be valid," stated HSBC. "After re-running millions of portfolio simulations using a recent data sample, we find very similar conclusions."

Specifically, the bank says a small allocation of 1% to 5% in crypto can enhance portfolio diversification. This is despite the firm's concerns that the correlation between crypto and other traditional risk assets has picked up in recent years.

By limiting crypto exposure to 5%, HSBC says its research shows this reduces the likelihood of ending up with very volatile portfolio outcomes. Hence, the 1% to 5% allocation "remains optimal."

In addition, while correlations between Bitcoin and US large caps were high in 2022, they diminished in 2023.

By Sam Boughedda

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