Long crosspaste coming from something I found elsewhere. Idgaf about blackrock in the long run, but this is interesting. Full paper at the end.
These are the authors:
• Andrew Ang is a managing director at BlackRock in New York, NY.
• Tom Morris is a managing director at BlackRock in London, UK.
• Raffaele Savi is a managing director at BlackRock in San Francisco, CA.
"It is optimal to hold a small allocation to BTC with utility functions that exhibit a preference for positive skewness, like Constant Relative Risk Aversion (CRRA) or Cumulative Prospect Theory (CPT) preferences when there is a small probability of the bliss regime occurring. The allocations are very sensitive to changes in the probability of the bliss regime."
and
"There is a “normal” regime with a relatively low mean (but still high in absolute terms) of 95% per year with large volatility of 114% per year. The other regime is a “bliss” regime which has an extremely high mean of 467% but with lower volatility of 51%. The bliss regime has a probability of approximately 3%. The infrequent occurrence of a draw from the bliss regime can fit the very long right-hand tail of the empirical distribution of BTC returns. In the context of Peterffy’s quote, the possible BTC appreciation to “a million dollars” can be modeled by the bliss regime."
and
"We consider only the role of BTC as a direct investible asset. This ignores any perspectives of the remarkable technology in the blockchain or the wider web3 ecosystem of which crypto is part, the possible role of crypto as a form of fiat money and possible seigniorage value, the market structure of BTC itself, the positive network externalities of BTC and other crypto in tokens and other membership-related features, or underlying fundamental valuation of BTC. These effects likely would lead to further demand for BTC holdings beyond that captured by financial wealth in a utility function."
IN CONCLUSION
"The bliss regime occurs with a small probability. The large positive skewness captured by the infrequently occurring bliss regime induces even investors with power utility, which is locally mean-variance, to hold significant allocations to BTC. Behavioral investors with Cumulative Prospect Theory (CPT) utility are even more sensitive to the large positive skew, because they overweight the bliss regime compared to its objective probability. With CPT, an investor need only believe the bliss regime will occur with probabilities around 0.0005 to hold optimal BTC allocations of approximately 3%."