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Bitcoin’s Impact to 60/40 Portfolios: Sizing, Rebalancing, and Holding Period

Primers

Our simulation spans the period from January 2014 to March 2024. 

We assume a baseline 60/40 portfolio for the US (60% S&P 500 and 40% US Aggregate), and that the bitcoin (BTC) allocation replaces part of the S&P 500 allocation. We use 3 month US Treasury Bills as the risk-free asset.

 

Our simulation aims to address three questions:

  1. What is the ideal size of a BTC allocation in a portfolio?

  2. What is the ideal rebalancing frequency?

  3. What is the ideal investment horizon?


What is the ideal size of a bitcoin allocation?


Increasing an allocation to BTC consistently led to higher average returns and higher average Sharpe ratios, even up to a 10% BTC allocation.

A 2% BTC allocation increased average portfolio returns by 1.9% per year and only 0.14% in additional volatility, improving the Sharpe ratio by 0.71.

For risk-sensitive investors, the sweet spot for a BTC allocation was 2% to 2.5%, as the impact on volatility and maximum drawdown remains marginal in this range.

 

What is the ideal rebalancing frequency for a BTC allocation?

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