BlackRock Suggests 2% Bitcoin Allocation

CRYPTO
BlackRock Suggests 2% Bitcoin Allocation

BlackRock, the world’s largest asset manager, recommends limiting Bitcoin to no more than 2% of your investment portfolio. The original cryptocurrency, while increasingly popular, is known for its extreme volatility. This year alone, Bitcoin surged from $43,000 to over $103,000 but has a history of sharp declines, including its 2021 drop from $67,000 to $17,000.

In a report released Thursday, BlackRock suggests that a 2% allocation to Bitcoin within a diversified portfolio is a “reasonable range.” This weighting aligns Bitcoin’s risk contribution with that of the Magnificent Seven mega-cap tech stocks in a traditional 60/40 portfolio of stocks and bonds. Going beyond 2%, the report warns, would disproportionately increase the portfolio’s overall risk.

Bitcoin’s unique attributes, including its low correlation to other assets and independence from geopolitical risks, make it a potential diversifier. However, BlackRock cautions investors to approach Bitcoin with a “risk budgeting” strategy—allocating based on how much risk Bitcoin adds to the overall portfolio.

While BlackRock sees potential for including Bitcoin as its adoption grows, it warns of its susceptibility to sharp price swings. Investors must balance its diversification benefits with its inherent risks and remain vigilant.

FINANCE
China Plans Increased Spending for 2025

China plans to increase fiscal spending in 2025, shifting its focus toward boosting domestic consumption to address economic vulnerabilities, including slowing exports and weak internal demand. At the Central Economic Work Conference, President Xi Jinping and top officials announced intentions to raise the fiscal deficit target, emphasizing “vigorously lifting consumption” as a top priority for the first time in years.

Policymakers outlined measures to enhance the social safety net, including health care and pensions, to encourage spending in a population wary of economic uncertainties. Analysts, however, noted the absence of detailed policies, suggesting public spending and infrastructure investment as likely strategies rather than direct cash handouts.

Amid growing external pressures, including the threat of new U.S. tariffs following Donald Trump’s reelection, China faces significant domestic challenges. Persistent deflation, low consumer confidence, and a prolonged housing slump are straining growth prospects.

To stabilize the economy, China may raise its budget deficit ratio to 4-4.5% of GDP, breaking with a long-held cap of 3%, and increase issuance of ultra-long treasury bonds and local government notes. Additional monetary easing, such as interest rate and reserve requirement cuts, is also expected to boost confidence and stimulate demand in 2025.

FINANCE
High Costs, Low Wages Cripple Consumption

Inflation in France has fallen to 1.6% in 2024, down from 5.2% in 2022, yet consumer spending remains stagnant. Despite a boost in sales during the summer Olympics and some companies, like Carrefour and Hermès, showing growth, most sectors—including real estate and retail—report reduced sales. Why?

The primary issue is that consumer prices, particularly for essentials like food, remain high, while wages have not kept pace. For instance, a watchdog group reports a 12.5% rise in staple food prices since 2022, forcing families to buy fewer items. Wages have risen by 11% since 2021, but with inflation outpacing income growth, disposable income has shrunk.

Leisure activities are also increasingly unaffordable. Hotel rates are up 37% in Paris compared to 2019, and vacations are moving beyond reach for many families. Political instability further compounds consumer hesitation, with uncertainty over taxes, global tariffs, and European economic challenges dampening confidence.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.