Matt Hougan, Chief Investment Officer at Bitwise Investments, joined Keith Black, Managing Director of RIA Channel, to discuss the size of bitcoin and crypto assets in the world market portfolio and how the relatively low correlation to stocks and bonds can allow investors to hold small crypto allocations without increasing portfolio risk.
Bitwise is a specialist crypto manager that has been in the market since 2017, managing $12 billion globally in ETFs, SMAs, and active strategies.
Hougan notes that many investors have misperceptions surrounding crypto, believing that the asset class is as risky as it was in 2015 or 2020. At those times, crypto was an outsider asset with lots of issues. Today, the asset has matured to the point where it is owned by pension and sovereign wealth funds and asset managers such as BlackRock and Fidelity. Nine of the ten largest hedge funds have crypto allocations.
ETFs are seeing strong flows as many institutional investors now believe that crypto needs to be a part of their asset allocation. Many investors have allocations between 2.5% and 5%, noting that crypto is still a risky asset class. Hougan states that crypto assets can complement stocks and bonds due to the low correlation of returns, as adding a small allocation to a stock and bond portfolio has historically increased risk-adjusted return over every three-year period. Because of these low return correlations, investors can add small allocations to crypto without increasing portfolio volatility.
Hougan recommends that advisors have conversations with their clients, as many of them are likely to already own crypto assets outside of the advisory relationship, because more Americans own crypto than own dogs. If advisors can bring those assets into the advisory relationship through ETFs, they can have continued conversations with their clients regarding behavioral finance issues, especially for investors who may have an allocation much larger than 5% of assets. While the crypto market is worth more than $3 trillion, many advisors hold zero crypto in client accounts. At $3 trillion, the size of the crypto market is similar to the assets held in hedge funds, private credit, or the largest stocks such as Nvidia or Apple. With bitcoin at $2 trillion and global equities valued at $120 trillion, a neutral allocation to bitcoin is 1% to 2% of assets.
WEBCAST – How to Build a Crypto Sleeve for Your Portfolio
With crypto expanding well beyond bitcoin, investors need the right tools to keep up. In this session, Bitwise CIO Matt Hougan outlines actionable strategies for gaining broad-based exposure to the most exciting opportunities across the crypto landscape—from digital assets to stablecoins and the companies building the future of crypto. Discover how to construct and manage a diversified crypto portfolio that captures the full opportunity set while avoiding unnecessary risks.
Accepted for 1 CFP® / IWI / CFA CE Credit