Morgan Stanley's Global Investment Committee has formally issued a recommendation for clients to strategically allocate a portion of their investment portfolios to bitcoin and other cryptocurrencies. A new report, released on October 1, details these allocations, primarily focusing on bitcoin, and tailors them based on specific investor risk profiles. For those pursuing opportunistic growth portfolios, which are characterized by higher-risk and higher-return strategies, the report suggests an allocation of up to 4% in crypto. In contrast, balanced growth portfolios are recommended to cap their crypto exposure at 2%.

The committee responsible for authoring the report firmly characterized bitcoin as a scarce asset, drawing parallels to digital gold. This designation underscores the belief that bitcoin now holds a legitimate and valuable role within diversified investment strategies. The report explicitly states, “We place the emerging asset class within real assets and focus our commentary here primarily on bitcoin, which we consider a scarce asset, akin to digital gold.”

While Morgan Stanley acknowledged the inherent historical volatility of the cryptocurrency asset class and its potential for high correlation with broader markets during periods of economic stress, the institution also highlighted significant improvements in crypto’s total returns and structural maturity in recent years, signaling a more robust market environment.

Furthermore, Morgan Stanley advised clients to regularly rebalance their multi-asset portfolios to incorporate crypto, ideally on a quarterly basis or at least annually. This regular rebalancing strategy is intended to mitigate the potential for positions to swell disproportionately, which could otherwise lead to outsized portfolio-level volatility and heightened cryptocurrency risk contributions during periods of macro and market instability. To manage volatility and prevent portfolio distortion during strong uptrends, the report specifically recommended gaining crypto exposure through exchange-traded products (ETPs).

This measured yet open stance towards integrating crypto into traditional investment frameworks aligns with recent market developments. The announcement coincided with bitcoin achieving a new all-time high of approximately $126,200 on the day the report was issued, extending a nine-day rally. This surge was attributed to strong spot ETF inflows and a weakening U.S. dollar, amidst renewed concerns over a potential government shutdown. Morgan Stanley’s latest guidance follows its earlier September decision to expand digital asset access for its clients through its E*Trade platform, facilitating trading in bitcoin and other cryptocurrencies via a strategic partnership with Zerohash.