Getting off zero: evaluating bitcoin's role in modern portfolios

As bitcoin and others in the digital assets ecosystem continue to mature, the debate around allocations to them is becoming more nuanced. Here we explore why investors now need to make an active decision around allocations to digital assets and why they need a clear rationale if they decide to take zero-exposure, given its status as an emergent asset class.

Key points

• Digital assets are developing rapidly as an asset class and the largest, bitcoin, has already started to make its way into the mainstream allocation conversation.
• The high return potential for the asset class (caveated by its equally high potential for significant drawdown), store-of-value characteristics, and diversification features mean that it can offer unique opportunities to investors.
• Given what it can offer, investors now need a reliable framework for taking informed bitcoin allocation decisions, not just taking a passive zero allocation through a default or inattention.

This is a summary of a longer paper. Access the full report here.

Bitcoin has matured into a distinct asset class and has been one of the top performing assets over many of the past 15 years. As such, investors must now ask whether a zero-allocation to bitcoin and other digital assets still represents a deliberate and well-supported portfolio decision. Given bitcoin's increasing maturity, liquidity profile and historical portfolio effects, investors may now need to articulate a clearer rationale for maintaining no exposure, even if a zero allocation remains appropriate for some mandates.

Bitcoin allocation: why investors need a well-informed rationale for maintaining zero exposure

Broadly, digital assets are still early in their development - tokenisation is still a nascent technology, while real-world use cases for other blockchains such as Ethereum or Solana are still being developed. Bitcoin, by contrast, has moved beyond the margins of financial markets, at times eclipsing silver by market capitalisation and approaching the ranks of the 10 largest publicly traded equities. It has also been the top-performing asset in 11 of the past 15 years. This does not remove the need for investor caution, particularly given bitcoin's volatility, but it does change the framing. Research found that even modest allocations have historically influenced portfolio outcomes meaningfully, while funding choices and rebalancing approaches tend to have marginal impact relative to the initial allocation decision.

Past performance is not indicative of future returns.
_{Source: Fidelity Digital Assets Research via PortfolioVisualizer.com, accessed on 20/01/26, period studied 01/01/16 - 31/12/25. Sharpe Ratio is mean monthly excess return over the risk-free rate divided by the standard deviation of excess return (risk-free rate is US three-month treasury bill rate). Sortino Ratio is similar to the Sharpe Ratio, with the same numerator as the Sharpe Ratio but divided by the standard deviation of negative returns only. Calmar Ratio is an annualised return over past 36 months divided by max drawdown over past 36 months based on monthly returns.}

Bitcoin has delivered the highest returns across asset classes over multiple time horizons in the past 15 years. However, it has also exhibited the highest volatility. On a historic basis, this volatility has been compensated for on a risk-adjusted basis, with bitcoin showing comparatively strong Sharpe and Sortino ratios. As such, inclusion in portfolio allocations at certain points over the past 15 years could have been seen as comparable to other risk-on approaches to diversified returns. However, given bitcoin's short history, early outsized gains and cyclical behaviour mean that it is a difficult analysis to make, and decisions would need to be made on a case-by-case basis, rather than taken as a broad view.

Digital assets and 60/40 portfolios: a new approach to diversification

Bitcoin is fundamentally a scarce asset - its hard cap of 21 million coins and pre-determined supply schedule supports the idea of evaluating it as functioning similarly to a scarce monetary asset such as gold. Both bitcoin and gold share certain store-of-value characteristics - scarcity and a perceived role in preserving purchasing power - and, indeed, have reacted similarly during some market shocks in recent years. However, they are not interchangeable. Their different investor bases and relatively low long-term correlation suggest that bitcoin may still add something distinct to portfolios that already hold gold. In this context, bitcoin could be seen less as a replacement for traditional stores of value and more as a complementary exposure with different return drivers and liquidity characteristics.

This has broader implications for the future of 60/40 portfolio construction. After a long period in which the equity/bond mix formed the foundation of diversified portfolios, investors now face questions about whether that structure is sufficient in an environment of changing inflation dynamics, shifting correlations and potentially lower bond diversification benefits. While bitcoin is not a universally appropriate solution for every investor, it is one potential alternative allocation that may warrant consideration within a more flexible approach to diversification, position sizing and risk budgeting.

Past performance is not indicative of future returns.
_{Source: Fidelity Digital Assets Research via PortfolioVisualizer.com, period studied: 01/01/16 - 31/12/25. Stocks are represented using the iShares Core S&P Total US Stock Market ETF (ITOT). Bonds are represented using the iShares Core US Aggregate Bond Index ETF (AGG). Bitcoin is represented using the Bitcoin Spot Market Price. Portfolios rebalanced annually to target allocations and dividends are reinvested. The above assumes the bitcoin allocation is funding equally from both the stock and bond portions of the portfolio.}

Funding sources showed marginal differences

When looking at these potential allocations to bitcoin, investors have historically taken funds from either side of the portfolio, though funding tends to more commonly come from equities. Many investment managers categorise bitcoin's high volatility as "risky", and therefore source it from the "risk" asset bucket.

However, research suggests that different funding sources do not have a significant impact on return potential - the results are close across all three funding choices in the hypothetical example below. As such, the decision may be less about where the funding comes from, and more about the initial decision to get off a zero-allocation.

Past performance is not indicative of future returns.
_{Source: Fidelity Digital Assets Research via PortfolioVisualizer.com, period studied: 01/01/16 - 31/12/25. Stocks are represented using the iShares Core S&P Total US Stock Market ETF (ITOT). bonds are represented using the iShares Core US Aggregate Bond Index ETF (AGG). Bitcoin is represented using the Bitcoin Spot Market Price.}

Bitcoin can have a high impact but needs caution

Overall, given bitcoin's status as the leading digital asset (and one of the leading assets more broadly over the past 15 years), a passive "no decision" approach to bitcoin allocations is likely no longer feasible. The high impact potential of the asset class means that investors need to have some level of analysis and active decision around allocations. While it has historically shown a high ceiling for returns, it has also shown significant downsides and, as such, should be evaluated with the same discipline applied to other asset classes.

Its volatility, regulatory context and mandate suitability remain important constraints. However, given its historical return profile, low long-term correlation with traditional assets and potential role in rethinking portfolio construction, the burden of analysis may be shifting. In today's environment, "zero" is no longer simply the absence of a decision. It is a position that requires its own investment rationale.

This is a summary of a longer paper. Access the full report here.

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Digital assets are speculative and highly volatile, can become illiquid at any time, and are for investors with high-risk tolerance. Investors in digital assets could lose the entire value of their investment.

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