Fidelity: Max-Sharpe Portfolio Holds 9.4% Bitcoin And Zero Bonds

@DigitalAssets has published research making the case that institutional investors now need a reason to hold zero Bitcoin, rather than a reason to hold any. The report, authored by analyst Chris Kuiper, applies mean-variance optimization across stocks, bonds, and $BTC using forward-looking capital market assumptions. The result: the portfolio with the highest Sharpe ratio allocates 9.4% to Bitcoin and nothing to bonds.

The firm also ran the Kelly Criterion, a position-sizing formula commonly used in portfolio construction, against two sets of return assumptions. Using a conservative 25% forward return estimate for Bitcoin, the framework suggests a 10% allocation. Applied to Bitcoin's actual historical returns, the same formula produces 65%, a figure Fidelity explicitly flags as a theoretical upper bound rather than a practical target.

To support the strategic case, the report points to Bitcoin's 0.87 r-squared correlation with global M2 money supply over 15 years, its status as the top-performing asset in 11 of the past 15 calendar years, and what Fidelity describes as its asymmetric volatility profile, where upside swings have historically outweighed drawdowns on a risk-adjusted basis.

Fidelity also argues the traditional 60/40 portfolio faces growing structural headwinds. Elevated equity valuations, negative real bond returns, and the risk of what the IMF has described as financial repression against sovereign debt holders all weaken the conventional case for a bond-heavy allocation.

The report's bottom line is straightforward. Even a 1% to 3% Bitcoin allocation has historically improved risk-adjusted returns within a 60/40 framework. In Fidelity's framing, the most consequential decision for institutional investors is simply moving away from zero.