Summary Michael Saylor argues Bitcoin is the "one chair" worth sitting on, but is it? I think most investors need multiple "chairs", with Bitcoin exposure limited to 15-30% of their portfolios. A 100% allocation to BTC is not advisable; historical data shows excessive volatility and risk of significant capital loss in bear markets. Bitcoin remains the most asymmetric long-term bet for investors convinced it will mature into a global reserve asset, but minimal exposure (1-5%) to BTC offers little upside today. I maintain a 'BUY' rating on Bitcoin, recommending substantial but balanced exposure for risk-tolerant investors seeking asymmetric returns. Michael Saylor, CEO of Strategy Inc. ( MSTR ), recently likened his company being all-in on Bitcoin to sitting on the one correct chair. His chair metaphor implied Bitcoin is the best and only asset worth investing in today. Today, with Bitcoin ( BTC-USD ) undergoing a correction of more than 25% since its recent all time high, I am revising my coverage for this cryptocurrency. In my past work I have discussed my bull and bear cases for BTC , why Bitcoin can be a global reserve asset (but not a global means of payment), and how a USD crisis is impacting it . In today’s article I will focus on what exposure investors should consider to Bitcoin in their portfolios. Using Saylor’s metaphor, how many “chairs” should they be sitting on? This, in my view, is a question readers may ask themselves during the current market correction. Especially if they entered a position in Bitcoin recently, in hope of short-term returns. Quick summary of my thoughts and thesis on Bitcoin Personally, I see Bitcoin as the most obvious asymmetric bet in the market at the moment: the possibility of entering a new global reserve asset before it fully matures into one. Bitcoin has all the characteristics it needs to become a superior global reserve asset: durability, divisibility, fungibility, portability, verifiability, and, most importantly in my view, scarcity. The real question is whether the world's institutions will actually adopt it as a global reserve asset. To assess whether that is or isn’t a likely scenario, my valuation model for Bitcoin includes three scenarios and two cases: A bullish case, with Bitcoin maturing to match Gold in market cap, at roughly $1,000,000 per coin. A bearish case, with Bitcoin remaining an “online casino”, meaning an asset whose value is only derived from its volatility and short-term trading. In this scenario, I assign Bitcoin a valuation of $100,000 per coin, roughly where it has been trading for the last months. The table below summarizes the outcome BTC valuation model (Author's work) Let’s talk about exposure to Bitcoin The exact amount of exposure to Bitcoin in one’s portfolio depends on personal objectives, attitude towards risk, and overall thoughts about Bitcoin. Anyone who is not convinced of my thesis or of Bitcoin’s technical characteristics should not be exposed to Bitcoin at all, for example. Conversely, risk-tolerant investors that are very bullish on Bitcoin may be fine with a significant exposure to it, up to a majority of their portfolios. Another important thing to consider is that some investors may find themselves holding a significant portion of their portfolios in Bitcoin, even if their cost basis is not as significant. That is my case: having bought Bitcoin at an average price of ~$25,000 per coin, I do have an exposure to BTC that, at market prices, reached up to over 30% of my overall portfolio when Bitcoin hit its ATH. Ultimately, allocating Bitcoin in one’s portfolio is an exercise that balances the potential for superior returns with the risk of volatility. With that in mind, I want to provide some food for thought on what exposure to Bitcoin readers should consider, using a specific use case, with the below assumptions: A 5-year buy-and-hold period. A comparison of Bitcoin to an investment in the Vanguard S&P 500 ETF ( VOO ). Return figures roughly based on the last 5 years’ performance: a +400% return for BTC and a +90% return for VOO (rounded for simplicity). A “stress test,” assuming that after the above returns, Bitcoin crashes 60% (entering a bear market) while VOO crashes 15%. Two exposure scenarios: Investor A being exposed 100% to Bitcoin and Investor B being exposed 20% to Bitcoin and 80% to VOO. The table below summarizes the return of such an exercise. Scenario Investor Allocation Component Outcomes Total Portfolio Value Portfolio Return Bull Case Investor A $100,000 BTC BTC → $500,000 $500,000 +400% Investor B $20,000 BTC $80,000 VOO BTC → $100,000 VOO → $152,000 $252,000 +152% Stress Test Investor A $100,000 BTC BTC → $40,000 $40,000 −60% Investor B $20,000 BTC $80,000 VOO BTC → $8,000 VOO → $68,000 $76,000 −24% The result, in my view, indicates how some Bitcoin exposure can significantly boost returns (based on historical data) while not having too much of an impact on volatility. Being fully exposed to Bitcoin, on the other hand, provides significant volatility that would see an investor losing most of their initial capital in case of a sharp correction. Fine-tuning Bitcoin exposure After having determined that a complete exposure to Bitcoin is not recommendable for most, a more interesting exercise concerns different levels of exposure. Should investors consider only a minor exposure to Bitcoin? Or should they consider up to half of their portfolio in Bitcoin? To answer those questions, I created the following two additional scenarios, which feature two new types of investors: Investor C, exposed to Bitcoin for 50% Investor D, with a minor exposure to Bitcoin of 5% The other assumptions remain exactly the same as the previous exercise. Below are the results. Scenario Investor Allocation Component Outcomes Total Portfolio Value Portfolio Return Bull Case Investor C $50,000 BTC $50,000 VOO BTC → $250,000 VOO → $95,000 $345,000 +245% Investor D $5,000 BTC $95,000 VOO BTC → $25,000 VOO → $180,500 $205,500 +105.5% Stress Test Investor C $50,000 BTC $50,000 VOO BTC → $20,000 VOO → $42,500 $62,500 −37.5% Investor D $5,000 BTC $95,000 VOO BTC → $2,000 VOO → $80,750 $82,750 −17.3% What this new scenario indicates, in my view, is that a minimal exposure of 5% to Bitcoin serves little or no purpose today. It doesn’t provide significant upside (Investor D’s performance is significantly lower than Investor B), but it still drags down overall performance during a bear market. In other words, with Bitcoin having already matured to a multi-trillion-dollar asset, future reasonable returns are not enough to justify a minor exposure. Bitcoin bulls should consider an exposure, in my view, of at least 15%-20% of their portfolio in order to see some benefits. That, of course, still comes with significant risks, which I will cover next. Risks I already mentioned at the beginning of this article that an investment in Bitcoin only makes sense for those who are bullish on it. As obvious as this sounds, this is something worth repeating, as I often get Bitcoin skeptics debating me in my BTC pieces, arguing that Bitcoin will never work. My entire work on Bitcoin, including this article, is based on the assumption that Bitcoin has everything it takes to mature into a global reserve asset, and that this outcome is more likely than not to happen. In that regard, the main risk of any type of exposure to Bitcoin is that this cryptocurrency may never mature to a global reserve asset and rather trade close to the current range indefinitely. Another risk concerns the fact that, today, BTC and the S&P 500 are not perfectly correlated. Pairing them reduces overall portfolio volatility while still allowing participation in Bitcoin’s upside. However, this is also based on historical data and may change in the future. If Bitcoin were to mature to a global reserve asset, it could also acquire the relatively low volatility of gold, the world’s global reserve asset today. Conclusion: No, Bitcoin should not be your “only chair” Even just five years ago, an argument could be made that an exposure to Bitcoin of 1%–5% of one’s portfolio could be beneficial. Today, Bitcoin bulls will find very little benefit from such a small exposure, which is certain to drag down their performance during bear markets but provides little upside overall. This said, a complete exposure to Bitcoin is not preferable either, as it exposes investors to significant capital depletion. In that sense, I do not share Saylor’s idea that a total exposure to Bitcoin is not only desirable, but even “obvious.” I rather believe Bitcoin bulls should be exposed between 15% and 30% to Bitcoin in their portfolio, depending on their attitude towards risk and tolerance to volatility. My “BUY” rating of Bitcoin for this article reflects my continued, bullish take on Bitcoin and my own exposure to BTC, which reflects my final recommendation.
