Citigroup has blunt take on portfolio returns in 10 years

Adding both gold and Bitcoin (BTC) increased the efficiency of a bond-and-equity portfolio over the last 10 years, a Citi study said.

A mix of gold and Bitcoin in an investment portfolio raised returns without raising risk, as per the study, CNBC reported on Apr. 16.

Related: Goldman Sachs predicts new low for gold

Bitcoin moving in tandem with risk assets, Citi says

Gold has been there for centuries but Bitcoin was introduced only in 2009. However, the latter's scarcity has led advocates to call it "digital gold."

But Wall Street's embrace of Bitcoin via spot exchange-traded funds (ETFs) has led to its price action starting to move in tandem with other risk assets, rather than acting as a hedge.

While giants like BlackRock (NYSE: BLK), Franklin Templeton (NYSE: BEN), and Fidelity have been offering these products for more than two years now, Morgan Stanley (NYSE: MS) also joined the race this month, and Goldman Sachs (NYSE: GS) is also applying to be a part of the ecosystem.

As of Apr. 15, these ETFs hold $97.57 billion in net assets, according to SoSoValue.

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Citi suggests combined investment approach

Citi suggested that investors, instead of choosing one over another, could hold small amounts of both gold and Bitcoin. The bank's analyst Alex Saunders said in a note,

“A 5% allocation to gold demonstrably increases portfolio efficiency. Splitting this allocation between gold and bitcoin further enhances performance.”

The combined approach shows better performance in bond-bull scenarios as compared to a traditional 60/40 portfolio. 

This approach also reflects better performance in bear-steepening, which has coincided with fiscal fears and increasing inflation risk premia after 2020, Saunders added and expected such an environment to endure.

“The relative popularity of gold investments relative to BTC also makes the mix more attractive tactically in our view.”

During a bearish bond market, Bitcoin can and has performed better than gold, Citi highlighted.

For instance, Bitcoin has risen 9% and gold has dropped 4% over the past few months amid the war in West Asia, the bank said in the note.

At press time, Bitcoin was trading at $75,347.71 and gold was trading at $4,791.09 per ounce.

Related: 213-year-old Wall Street giant trims Bitcoin, Ether price targets