Bitcoin Portfolio Weights Across Pre- and Post-Financialization Periods

Summary

This analysis examines Bitcoin’s role in a diversified portfolio before and after the market’s financialization, using 2013–2017 and 2018–2023 as separate periods. It compares historical returns, volatility, drawdowns, and correlations, then applies Markowitz mean-variance optimization and naïve risk parity to a ten-asset portfolio spanning equities, bonds, real estate, commodities, gold, and Bitcoin. The pre-2017 period shows unusually strong Bitcoin returns and very low correlations with the other assets; the later period shows weaker risk-adjusted results and greater correlation with some traditional markets.

The optimized Bitcoin weight falls from about 14.42% in the earlier sample to 2.94% in the later one, while risk-parity allocations are around 2% in both periods. The authors consequently suggest limiting Bitcoin exposure to roughly 2–3%. These are historical, sample-dependent estimates, not universal portfolio prescriptions. The document cautions that the market has changed and that past performance does not guarantee future results; optimization outcomes also depend on the assets, period, and assumptions used.

Key ideas

• The analysis separates Bitcoin’s historical record into pre- and post-financialization periods.
• It compares correlations and portfolio outcomes using Markowitz optimization and naïve risk parity.
• The later sample produces a lower optimized Bitcoin allocation than the earlier sample.
• Risk-parity allocations are low in both periods because Bitcoin contributes substantial volatility.
• The suggested allocation is grounded in historical samples and may not generalize to future conditions.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.