Ark Invest says this 'optimal' bitcoin strategy will yield better returns

Published Tue, Feb 27 20246:06 PM EST

Bitcoin prices have rebounded since 2023, recovering from steep declines in the couple of years before. Prices of the cryptocurrency are still rallying. Two weeks ago, it regained its $1 trillion market cap as it hit an over two-year high . On Tuesday, bitcoin prices reached a two-year high of over $56,000. Ark Invest's chief futurist, Brett Winton, believes that a "responsible allocation to innovation generally is really, really critical." "I think a responsible allocation for bitcoin in the single digits will provide a better return over time," told CNBC's " Street Signs Asia " on Tuesday. "This is not an investment advice. This is based on historical data." How much of investors' portfolios should be allocated to bitcoin, and what's the minimum amount of time they should hold the asset for? According to Ark Invest's research, the answer is five years. "Bitcoin's volatility can obfuscate its long-term returns. While significant appreciation or depreciation can occur over the short term, a long term investment horizon has been key to investing in bitcoin," Ark said in its Big Ideas 2024 report dated Jan. 31. "Instead of 'when,' the better question is 'for how long?' Historically, investors who bought and held bitcoin for at least 5 years have profited, no matter when they made their purchases," it added. In fact, while there might have been many skeptics on bitcoin in the past, Ark Invest says, the cryptocurrency has emerged as an independent asset class "worthy of a strategic allocation" in institutional portfolios. On average, Ark Invest's research shows that the "optimal" allocation to maximize risk-adjusted returns — on a five-year time horizon — would be 4.8% on average since 2015. In 2023 alone, that number was 19.4%. The breakdown of Ark Innovation ETF's tech investments is as follows: cryptocurrencies make up 6.9% of it, and digital wallets 8.8%, among other tech themes. The ETF is the company's flagship fund. Information technology as a whole takes up 29.4% of the fund, as of Dec. 31, 2023. "More than half of equities is going to be disrupted - innovation exposed by the end of this decade," Winton said. "And so if you don't have something that is prepared for that future, if you own an incumbent provider that's going to be disrupted by innovation, you better risk adjust that with a lot of innovation exposure to protect yourself." 'Major catalysts' in 2024 According to Ark Invest, "major catalysts" await bitcoin this year. On top of the approval of spot bitcoin ETFs in January, there are three catalysts: Bitcoin halving — which occurs once every four years — is expected to take place in April. "Historically, each halving event has coincided with the beginnings of a bull market," Ark said. Here's what history shows. Institutional acceptance: Ark believes that bitcoin's "continued resilience and performance" will drive a shift in perception of the cryptocurrency from a "speculative instrument" to a strategic investment in a diversified portfolio in 2024. Ark cited the example of BlackRock's CEO, who, though initially a skeptic, in October described bitcoin's rally as a "flight to quality." Regulatory developments: Ark says the bankruptcies of FTX and Celsius have "advanced the push" for more transparent and open global crypto regulation, including in the U.S. and Europe.