Bitwise CIO says don’t add bitcoin to traditional portfolios in isolation — rethinking its role can boost returns and cut risk

While bitcoin is renowned as a highly volatile asset, three or four times that of the S&P 500, Bitwise Chief Investment Officer Matt Hougan says rethinking its role in traditional portfolio strategies can boost returns and reduce risk.Because bitcoin has a low correlation to both stocks and bonds, even small allocations to a traditional 60/40 stocks and bonds portfolio have historically boosted returns with only modest risk, Hougan wrote in a note to clients late Tuesday. For example, a 5% bitcoin allocation from 2017 to 2024 (by reducing stocks to 57% and bonds to 38%) raised total returns from 107% to 207%, while standard deviation volatility rose just slightly — from 11.3% to 12.5%.Hougan acknowledged that many in the crypto space did not manage their personal portfolios like this and preferred barbelled structures, such as a large allocation to crypto and cash or money market funds, with little in between.Nevertheless, he argued that for the traditional portfolio investor, there is a better way to generate even higher returns with less risk by compensating for the addition of bitcoin elsewhere.Don't add bitcoin in isolationRevisiting his example, if investors still allocated 5% to bitcoin but also increased their bond exposure by 5%, it would, in theory, reduce equity risk, Hougan said. By also rotating from broad-based asset bonds to short-term Treasury bills, the bond risk would also be theoretically reduced, he added.Based on the historical data, the adjustment would have generated higher returns than the standard 60/40 portfolio and roughly the same as his first example — but with less risk than either. Taking that even further and considering a portfolio that cuts equity exposure to 40%, increases bond allocation to 50%, and adds 10% in bitcoin, greater returns and less risk than the first example would have been generated, Hougan demonstrated.Bitcoin adjusted traditional portfolio returns. Image: Bitwise."Of course, there’s no guarantee this will persist in the future — bitcoin's early returns were extraordinary, and future returns may not match the returns during this study," Hougan said. "But the data reinforces something important: When you think about adding bitcoin to a portfolio, don't do it in isolation. Think about it in the context of your entire risk budget. You might be surprised at the results."Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.© 2025 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.