PT - JOURNAL ARTICLE AU - Stefan Hubrich TI - Bitcoin in a Multi-Asset Portfolio AID - 10.3905/jai.2022.1.177 DP - 2022 Dec 31 TA - The Journal of Alternative Investments PG - 63--80 VI - 25 IP - 3 4099 - https://pm-research.com/content/25/3/63.short 4100 - https://pm-research.com/content/25/3/63.full AB - Investors looking to integrate digital assets into a traditional, diversified multi-asset portfolio need to formulate appropriate risk and return assumptions for them. Using the case of bitcoin, we argue that due to the short duration of available returns and the extreme volatility of the asset, historical returns are an unreliable basis for directly formulating forward return expectations. We also show that bitcoin’s return characteristics require an emphasis on such portfolio construction considerations as rebalancing frequency that are often peripheral in traditional asset allocation studies. We then demonstrate an allocation approach that addresses these concerns. The main idea is to extract required return thresholds for a small bitcoin investment (1% or 5%) that need to be underwritten by the investor, rather than relying on explicit return expectations as the input. We show that these return thresholds are surprisingly low, illustrating that the broader multi-asset portfolio perspective is critical when making investment decisions regarding high-volatility assets like bitcoin.