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How to incorporate Bitcoin into your investment portfolio effectively​

​As Bitcoin becomes more accessible through ETFs, investors face key decisions about allocation, volatility management, and correlation with traditional assets.​

Bitcoin Source: Bloomberg images

Written by

Axel Rudolph FSTA

Axel Rudolph FSTA

Senior Technical Analyst

Article publication date:

Strategic allocation approaches

​As cryptocurrencies become more accessible through exchange-traded funds (ETFs), investors face increasingly complex decisions regarding how to integrate digital assets into their portfolios.

​Key considerations include:

  • Whether to index crypto holdings
  • How to manage volatility
  • Understanding correlation with other asset classes
  • Determining appropriate weighting
  • Decide between concentrating on large-cap digital assets like Bitcoin and Ethereum or exploring broader crypto ecosystem exposure.

​Some institutions advocate for sticking with the most liquid and widely traded cryptocurrencies, arguing that the current crypto landscape lacks enough mature alternatives to justify broader indexing.

​Managing volatility and institutional adoption

​Cryptocurrencies are notoriously volatile, a characteristic often viewed as a drawback, though this volatility is frequently attributed to the early-stage nature of the asset class. Much of the current crypto volatility is driven by the behaviour of retail investors, who still dominate the space.

​As institutional participation and market liquidity grows, the expectation is that volatility will moderate, similar to how other assets like gold evolved before becoming broadly adopted.

Historical perspective on Bitcoin's volatility

Bitcoin's volatility has evolved significantly since its inception in 2009, reflecting the maturation of the cryptocurrency market. In its early years, Bitcoin exhibited extreme price swings.

For instance, in 2013, its price surged from around $13 in January to over $1100 by December, only to crash below $200 in the following years. Similar dramatic fluctuations occurred in 2017 and 2018, when Bitcoin skyrocketed to nearly $20,000 before plummeting to around $3000.

Recent trends in Bitcoin volatility

More recent trends suggest a gradual decline in volatility. For example, in 2023, Bitcoin’s price ranged between $16,000 and $31,000 - a far narrower band than in earlier cycles - and despite macroeconomic pressures, daily price movements were less erratic.

​While Bitcoin remains more volatile than traditional assets like gold or the US 500 (S&P 500), the reduction in sharp price swings signals that the asset may be stabilising as it becomes more integrated into mainstream finance.

Contracts for difference (CFD) trading participants should understand that as ownership shifts and Bitcoin becomes more embedded within diversified portfolios, its risk profile may evolve.

​Correlation with traditional markets

​From a portfolio construction perspective, Bitcoin's correlation with other investments remains a critical factor for diversification potential.

  • Long-term basis: Bitcoin's correlation to traditional equities like the US 500 remains low - similar to that of gold.
  • Short-term basis: Bitcoin exhibits periods of higher correlation with risk assets during broad market selloffs.

​​Online trading investors should understand the duration and frequency of these correlation spikes when determining Bitcoin's true diversification potential.

​Optimal portfolio weightings

Research suggests that allocating between 1% and 5% of a portfolio to Bitcoin can enhance risk-adjusted returns. The 3% allocation level is often cited as optimal, improving performance without significantly increasing downside risk.

​Crypto can be viewed similarly to other alternative investments like venture capital or high-growth equities..

​Bitcoin technical analysis and price outlook

The June to July rally briefly took Bitcoin above its December to January highs of $108,287.62 to $109,354.00, reaching a $110,598.55 one-month high before consolidating.

Bitcoin’s advance may struggle in the short term below its record May high of $111,965.80 and could retrace lower towards its early July low of $7,335.44, with a fall potentially opening the door for the 55-day simple moving average (SMA) at $6407.78 and the early July low at $5159.03 to be reached.

Bitcoin daily candlestick chart 

Bitcoin daily candlestick chart Source: TradingView
Bitcoin daily candlestick chart Source: TradingView

A rise in Bitcoin above its May to July highs of $110,617.03 to $111,965.80 could potentially target the 261.8% Fibonacci extension level at $122,056.92, projected from the 2022 low

​Bitcoin monthly candlestick chart

Bitcoin monthly candlestick chart Source: TradingView
Bitcoin monthly candlestick chart Source: TradingView

​Remember that cryptocurrency markets are unregulated and highly volatile, and that you may lose all your investments. Consider your investment goals and risk tolerance before investing.​​ 

  • Source: TradingView. The figures stated are as of 8 July 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

   

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