Fidelity Recommends 1-3% Bitcoin Allocation

Anyone buying one of Fidelity's all-in-one ETFs will now gain exposure to bitcoin.

What happens when other fund managers take Fidelity's lead?

As bitcoin powers through $58k and looks set to challenge its all-time highs before long, the flywheel effect is getting stronger. The ETF issuers are rolling out their advertising campaigns, but rising price is the best form of marketing, putting a tailwind behind their narratives.

Now, Fidelity has formally included bitcoin in its standard "All-in-One" ETF portfolio models, recommending a 1-3% allocation, depending on risk tolerance.

Fidelity's All-in-One portfolio ETFs

For example, suddenly, the traditional 60-40 portfolio beloved by money managers for decades has become 59-39-2. Fidelity describes this as a "balanced" ETF fund; a conservative approach includes a 1% crypto (i.e. bitcoin) exposure. Higher-risk all-in-one ETFs intended for long-term growth include a 3% crypto exposure. However, even a 3% allocation is only characterized as "medium" risk.

Get strategic exposure to crypto (1–3%, depending on the fund) for added diversification. Keeping a small allocation to crypto in your portfolio can give you the potential for higher returns and serve as a hedge against traditional markets.

Game Theory For Portfolio Managers

Now that Fidelity have made this move, other fund managers will be incentivized to do the same.

There is demand for bitcoin: This much is clear from the huge volumes and inflows for the ETFs. It makes very good sense for Fidelity to bundle their FBTC ETF with other products to make it easy to gain a small exposure to bitcoin. Firstly, it saves consumers the trouble, since they only need to buy one asset. Secondly, for Fidelity, it's another source of revenues and indirect marketing, since every customer who buys an ETF with a 1-3% crypto allocation is pushing demand through to FBTC.

If other brokers do not follow Fidelity's lead, they will lose out. Therefore it's a logical step that BlackRock and the others will offer similar products in the near future. Additionally, they may start to offer products targeting more aggressive gains.

Index Funds

Fidelity's move is another step in normalizing bitcoin ownership, making it just another asset that people buy when diversifying their portfolios.

There’s Nothing Micro About Microstrategy’s Strategy
It’s easy to see Microstrategy as a simple proxy for bitcoin exposure, but the truth is a little more interesting than that.

A similar effect may be about to take place with Microstrategy, which (thanks to the rising price of bitcoin) is now large enough to be included in the S&P 500. This is not automatic, but should it happen, MSTR will be bought by all of the funds that allocate money to the S&P. This will drive the price up beyond the value of its assets, allowing Saylor to sell shares and buy more bitcoin with the proceeds. This, in turn, increases the value of the company, and the cycle continues.

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