Reassessing Bitcoin Allocation: Insights from Gregory Mall’s Backtesting

Reassessing Bitcoin Allocation: Insights from Gregory Mall’s Backtesting

In a recent analysis, Gregory Mall from Lionsoul Global revisited the critical question of how much bitcoin should be held in investment portfolios rather than focusing solely on what to own. This follow-up to his previous essay on sizing crypto risk examines the performance of bitcoin in a traditional 60/40 portfolio across various market conditions.

Understanding Bitcoin’s Role in Portfolios

Utilizing backtesting from January 2021 to March 2026, Mall assessed the impact of integrating spot bitcoin positions at weights of 2.5% and 10%. The findings reveal that including bitcoin improved returns and Sharpe ratios, particularly during strong crypto performance periods. Conversely, the traditional 60/40 structure helped stabilize returns in weaker markets.

By testing different allocation strategies, Mall discovered that even a modest allocation of bitcoin altered the overall risk and reward profile while still maintaining the fundamental 60/40 balance.

Utilizing a Trend-Managed Approach

Further analysis involved employing a rules-based trend management strategy instead of a direct bitcoin position. This trend-managed approach, which alternates between holding bitcoin and cash based on market signals, successfully moderated extreme shifts during both upward and downward market cycles. This method resulted in a more balanced portfolio performance, illustrating the benefits of risk management.

Evaluating Market Regimes

In dissecting market conditions, Mall’s findings identified significant differences between bull, bear, and sideways markets. During bull phases, both a direct bitcoin holding and the trend-managed approach surpassed the performance of a basic 60/40 portfolio. However, during bear markets, the volatility of spot bitcoin significantly impacted the overall portfolio, exacerbating losses. The trend sleeve provided a more resilient option, allowing investors to navigate downturns with lesser drawdowns.

Sideways markets pose unique challenges, as they often test investors’ discipline. Here, direct bitcoin exposure failed to deliver adequate returns relative to the associated volatility, while the trend-based approach demonstrated greater effectiveness in minimizing risk.

The Future of Bitcoin Allocation

As the bitcoin market evolves, three structural factors are set to shape future portfolio decisions: increased sensitivity to market flows post-ETF, diminishing supply growth following the 2024 halving, and a push for clearer regulations that differentiate viable projects from speculative ventures. These elements underscore the importance of a disciplined approach to bitcoin investment, prompting allocators to focus on effective holding strategies that mitigate emotional decision-making during turbulent times.

Mall’s work emphasizes that in the realm of crypto investment, understanding how much and by what means one holds bitcoin can be as vital as the choice of assets themselves.