Bitcoin in a portfolio: Utilizing potential, minimizing risk

In this guest article, analyst Jan Wüstenfeld highlights the unique fundamental characteristics of Bitcoin, which make it an attractive investment despite high price fluctuations. Using practical examples, this article will demonstrate how to minimize volatility and improve the risk/return ratio by integrating Bitcoin into traditional investment portfolios.

Bitcoin has unique fundamental properties that make Bitcoin an attractive investment — non-corruptibility, decentralization, consistency, scarcity. Bitcoin's high price fluctuations may seem daunting at first glance. In particular, the long price corrections in bear markets when general sentiment is bad can challenge even experienced Bitcoin holders.

An example of a minor correction is the recent price fluctuations, which saw the Bitcoin price drop from over €67,000 to at times below €56,000 within a short period of time. Especially for newcomers to the world of Bitcoin, such fluctuations can be a deterrent. But how can you benefit from the potential of the Bitcoin price while minimizing the volatility of your portfolio?

Risk-adjusted return of Bitcoin

Bitcoin is known for its price cycles, sometimes with strong volatilities, but shows a historical upward trend over medium to long-term periods of time. Bitcoin's risk-adjusted return, which takes into account the ratio of return to risk (volatility), has been unmatched compared to traditional assets over the past eight years, particularly with a holding period of at least four years — which is equivalent to a halving cycle. This underscores Bitcoin's appeal as a long-term investment, particularly for investors who are willing to accept short-term volatility and pursue a long-term perspective.

Bitcoin Risk Adjusted Returns

Traditional portfolios with Bitcoin allocation

One strategy to capitalize on this momentum while minimizing risk is to integrate Bitcoin into a traditional investment portfolio. A study by Bitwise, a renowned issuer of a Bitcoin ETF, examined exactly this approach. A classic 60/40 portfolio (60% stocks, 40% bonds) was compared with a portfolio that includes Bitcoin. The results show that even a small addition of Bitcoin, such as 1%, can result in a significant increase in returns without the volatility of the overall portfolio increasing excessively or the maximum corrections sharply increasing.

Portfolio Performance Metrics

An analysis by Incrementum also shows the considerable potential of a Bitcoin position within a portfolio based on the MSCI World Index and Gold at a ratio of 85/15. Even with a Bitcoin allocation of 5%, a significant outperformance is evident. This underscores Bitcoin's strength as a valuable addition to traditional investment strategies, as it not only increases diversification but also offers the potential for above-average returns.


While past performance is no guarantee of future results, such analyses illustrate that a moderate addition of Bitcoin can improve a portfolio's risk/return ratio. The potential losses due to a small Bitcoin allocation remain limited within the overall context of the portfolio, while the potential gains can be significant.

By integrating Bitcoin into your portfolio, you can benefit from price potential, while the volatility of the overall portfolio only increases minimally. As conviction and knowledge about Bitcoin increases, the weighting in the portfolio can be adjusted accordingly.

It is important that you feel comfortable with your Bitcoin position and the sharp price fluctuations and that you are not tempted to sell at a loss during a steep price correction or a protracted bear market.

About the author

Jan Wüstenfeld is an economist, analyst and passionate Bitcoiner. He regularly publishes his analyses of various Bitcoin statistics, on-chain metrics, but also assessments of central bank practices and bond market developments on his website ”Bitcoin Market Intelligence”.

Disclaimer: The views and information expressed in the guest contributions should not be interpreted as financial advice. It is important to note that Coinfinity does not necessarily represent the same positions and views as in the content provided here.