Bitcoin simulator: how much should you hold in your portfolio?

At the beginning of the year, reviewing asset allocation is a key step for every financial advisor. In a context characterized by persistently high interest rates, greater macroeconomic uncertainty, and less linear returns than in the past, the issue of diversification is once again a priority.

In recent years, a specific question has been coming up more and more often: does it make sense to include even a small amount of Bitcoin in a traditional portfolio made up of stocks and bonds?

The answer cannot be ideological. It must be based on numbers, simulations, and risk management rules.

Bitcoin should not be considered an alternative to equities or bonds, but rather a new asset class with its own characteristics. Its low historical correlation with traditional markets, combined with highly asymmetric returns, makes it a very useful tool for portfolio construction, provided that exposure is consistent with the risk budget and managed in a disciplined manner.

For a financial advisor, the point is not to "push" Bitcoin into the portfolio, but to understand how much and by what rules, while remaining consistent with the client's risk profile.

A simulator to support advisory decisions

In this context, we would like to highlight the Excel portfolio simulator that I have developed, which allows you to analyze the impact of adding Bitcoin to your portfolio.

The tool, based on historical data from the last 10 years, is designed to support advisors by simulating the effects of different allocation choices. The simulations show that, in many cases, even a small amount of Bitcoin (roughly between 5% and 10%) can improve the overall risk/return profile of the portfolio without distorting its structure.

How the simulator works

The simulator allows you to build and test different portfolio scenarios in a simple and transparent way. In particular, it allows you to:

• define the percentage of capital invested in stocks, bonds, and cash

• enter an initial Bitcoin allocation

• set a maximum threshold for the weight of the Bitcoin component, beyond which a rebalancing is carried out

• simulate progressive subscriptions if the weight of Bitcoin falls below the initial value

• analyze the return, volatility, and drawdown of the overall portfolio over time

In this way, Bitcoin volatility is not suffered, but managed within a structured process.

Practical support for consulting

The value of the simulator lies not only in the numerical results, but also in the method it proposes. It is a useful tool for rationally explaining the role of digital assets in a portfolio, comparing different scenarios, and supporting decisions consistent with the advisory mandate.

Would you like to receive the Excel file?

If you are a finance professional and would like to try the simulator, you can request it by writing to us at info@diamanpartners.com

I will be happy to share the file and explain the method in more detail.

Happy simulating and happy investing!

Daniele Bernardi