Blackrock Compares Bitcoin to 'Magnificent 7' Stocks: The Next Big Allocation Play

Bitcoin Meets the ‘Magnificent 7’: Blackrock’s Allocation Recommendation

Blackrock Investment Institute (BII), the research arm of Blackrock, the world’s largest asset manager, has highlighted bitcoin’s growing significance in investment portfolios. In its recent report, titled “Sizing Bitcoin in Portfolios,” BII explores bitcoin’s unique characteristics, potential for portfolio diversification, and the risks stemming from its high volatility. According to the report, bitcoin’s potential lies in its broader adoption over time, which could unlock substantial returns.

The Case for Bitcoin Allocation

“The potential for future widespread adoption is thus central to the investment case for bitcoin. We believe it is the period leading up to large-scale adoption where the biggest future return potential could lie,” the report asserts.

BII recommends a disciplined approach to bitcoin allocation, proposing a 1%-2% inclusion in a traditional 60-40 stock-bond portfolio. This measured strategy is likened to the allocation approach for the “magnificent 7” mega-cap tech stocks—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. The report elaborates:

“So how can investors think about a bitcoin allocation? Bitcoin cannot be compared to traditional assets. But from a portfolio construction perspective, the ‘magnificent 7’ group of mostly mega-cap tech stocks is a useful starting point.”

These stocks, like bitcoin, represent single holdings with a substantial share of portfolio risk. A 1%-2% bitcoin allocation provides a similar risk level, balancing its potential for diversification without introducing outsized volatility. The report cautions that exceeding this allocation could significantly increase overall portfolio risk.

Bitcoin’s Evolution and Long-Term Prospects

BII also explores bitcoin’s potential transformation with increasing adoption. While bitcoin’s decentralized nature and immunity to government interference make it appealing for cross-border transactions, its volatility remains a concern. The report predicts that widespread adoption could reduce volatility but might also limit bitcoin’s high-growth potential. BII states:

“Looking ahead, should bitcoin indeed achieve broad adoption, it could potentially also become less risky – but at that point, it might no longer have a structural catalyst for further sizable price increases.”

In such a scenario, bitcoin’s long-term investment appeal may diminish, and investors might opt for tactical usage, similar to gold, to hedge against specific risks.

Blackrock’s Strategic Embrace of Bitcoin

Blackrock’s pivot toward bitcoin marks a significant shift in its stance on digital assets. Its spot bitcoin exchange-traded fund (ETF), the iShares Bitcoin Trust (IBIT), launched earlier this year, has rapidly become one of the largest bitcoin holders. CEO Larry Fink, who once expressed skepticism about cryptocurrencies, now views bitcoin as a “legitimate financial instrument,” equating it to digital gold.

Blackrock’s endorsement underscores its role in mainstreaming cryptocurrencies as integral components of global investment strategies, solidifying bitcoin’s position as a credible and valuable asset.