How We Set Bitcoin Return Assumptions (And Why It's Hard)

The Problem: No One Agrees

For every other asset class in Portfolio Lab, we can point to J.P. Morgan's Long-Term Capital Market Assumptions — the industry's gold standard, now in its 30th edition. The LTCMA covers 200+ asset classes with a rigorous building-block methodology. Thousands of institutional portfolios are constructed using these numbers.

Bitcoin isn't in the LTCMA. It's not in BlackRock's CMA either. Or Research Affiliates'. Or AQR's. Or GMO's. The five major CMA providers we track — covering every other asset from US large cap to emerging market local debt — all exclude Bitcoin from their formal return assumptions.

That's not because they ignore it. BlackRock runs the largest Bitcoin ETF (IBIT) and recommends 1–2% allocations. Fidelity offers Bitcoin custody and has published extensive portfolio analysis. But neither publishes a formal expected return number. BlackRock explicitly states that Bitcoin “has no underlying cash flows” for traditional return estimation.

So we have to set our own assumptions. Here's how we did it.

What the Institutions Actually Publish

While the big five CMA providers skip Bitcoin, a handful of institutional-grade firms do publish formal capital market assumptions for it. Here's what exists as of early 2026:

*CF Benchmarks is the FCA-regulated benchmark administrator behind the reference rates used by CME Bitcoin futures and most spot Bitcoin ETFs, including BlackRock's IBIT. Owned by Kraken.

The range is enormous. VanEck's ~15% is the most conservative published institutional estimate. ARK's base case implies ~51% — more than 3x higher. Even ARK's bear case (27%) is nearly double VanEck's number.

Note that ARK publishes price targets ($300K bear, $710K base, $1.5M bull by 2030), not formal annualised return assumptions. The CAGRs above are implied from a starting price of approximately $90,000.

Our Approach: Conservative by Design

Portfolio Lab is a planning tool, not a crypto promoter. When our assumptions feed into retirement projections, withdrawal rate calculations, and portfolio optimisations, the cost of overestimating is far higher than the cost of underestimating. An overestimate could lead someone to save too little or take too much risk. An underestimate just means they end up with more money than expected.

That asymmetry guides everything we do.

Expected Return: 15% Geometric

We set Bitcoin's expected geometric return at 15% per annum. This is the lowest published institutional estimate (VanEck's base case) and sits at the very bottom of the range. It's roughly 2x the expected return of global equities, which feels proportionate for an asset that carries significantly more risk.

For context, this is approximately half of Bitcoin's realised CAGR over the last 5 years, and a fraction of its lifetime CAGR. We're betting that returns will moderate substantially as the asset matures — which is exactly what you'd expect from an asset transitioning from speculative to institutional.

If anything, 15% may still be too high for a truly conservative planning assumption. But it's the lowest number any credible institution has published, which makes it defensible. If you believe the number should be lower (or higher), you can override it in our calculator.

Volatility: 42.5%

Here's where we diverge from the published estimates, and deliberately so.

The forward-looking volatility estimates from institutions are optimistic:

• CF Benchmarks projects 28% over 10 years
• Bitwise estimates 32.9%
• Both assume deepening liquidity, institutional adoption, and derivatives market maturation will structurally dampen volatility

They may well be right — eventually. But Bitcoin's trailing 3-year realised volatility is still around 45%, and the post-ETF era (since January 2024) has shown volatility in the 35–45% range. The structural decline is happening, but it hasn't happened yet.

We set volatility at 42.5% — below the historical average (~50%) but well above the forward estimates. This acknowledges the trend without betting on the destination. In portfolio construction, higher volatility penalises an asset: it reduces the Sharpe ratio and limits how much the optimiser will allocate. We'd rather be conservative here.

The Combined Effect

With 15% return and 42.5% volatility, Bitcoin's implied Sharpe ratio is:

That's a modest Sharpe ratio — slightly below global equities (~0.32 using JPM LTCMA data). The optimiser won't go crazy on Bitcoin allocations with these numbers. In a mean-variance framework, these assumptions typically suggest 2–5% Bitcoin for a balanced portfolio, which aligns with the sizing guidance from BlackRock (1–2%) and Fidelity (0–5%).

In other words: even though BlackRock and Fidelity don't publish expected returns, our conservative assumptions produce allocations consistent with their published portfolio sizing research.

Why Not Use [Other Number]?

Why Not ARK's 27%+ Bear Case?

ARK's research is valuable but serves a different purpose. Their models are adoption-curve driven — projecting addressable market capture across use cases (store of value, remittances, nation-state reserves, corporate treasury, etc.). These produce price targets, not portfolio construction assumptions. A 27% CAGR in a mean-variance optimiser would push Bitcoin to 15–25% of most portfolios, which doesn't align with any institutional sizing guidance.

Why Not Bitwise's 28.3%?

Bitwise is a credible crypto asset manager and their CMA paper is well-researched. But their 10-year target of $1.3M per Bitcoin implies significant adoption growth that may not materialise on that timeline. For a planning tool, we prefer to undershoot and let users adjust upward if they're more bullish.

Why Not Something Lower, Like 8–10%?

Some academic studies use 8–10% for Bitcoin, essentially treating it as a high-volatility equity substitute. While conservative, this doesn't reflect any published institutional view — even the most cautious institutional estimates are higher. Using 8% would also produce a Sharpe ratio so low that the optimiser would never include Bitcoin, which contradicts the observable trend of institutional adoption.

A Note on Declining Volatility

One of the strongest structural arguments for Bitcoin is that its volatility is falling over time. Early Bitcoin (2011–2015) regularly saw 80–100% annualised volatility. By 2020–2023, this had compressed to 50–70%. The post-ETF era (2024–present) is showing 35–45%.

The drivers are real: spot ETFs brought in traditional market makers, derivatives open interest has exploded, and institutional custody solutions have reduced the likelihood of exchange-driven volatility events. Bitwise and CF Benchmarks both project further compression to 28–33% over the next decade.

If this plays out, Bitcoin's Sharpe ratio improves dramatically even without higher returns. At 15% return and 30% volatility, the Sharpe would be 0.40 — better than most equity markets. That's the bull case for Bitcoin as a permanent portfolio allocation, and it doesn't require believing in $1M+ price targets.

We'll revisit our volatility assumption as more post-ETF data accumulates. For now, 42.5% reflects where we actually are, not where we hope to be.

Summary of Our Assumptions

These assumptions are used across Portfolio Lab: in the Bitcoin Allocation Calculator, the CMA Comparison Tool, and the main portfolio optimiser. You can override them in the assumptions tab if you have a different view.

We'll update these assumptions at least annually, or sooner if the institutional landscape shifts materially. As more major CMA providers begin covering Bitcoin formally — and they will — we'll incorporate their estimates into our methodology.