Crypto & the Modern 60/40: Advisor Summary

Introduction: Why the Traditional 60/40 Is Under Pressure 

For much of the past half-century, the traditional 60/40 portfolio provided a stable foundation for long-term wealth management. Falling interest rates, subdued inflation, and reliably negative equity–bond correlations allowed equities to drive growth while bonds absorbed shocks.

That backdrop has now shifted decisively. The post-COVID period marked a clear break from the conditions that underpinned the model’s historical performance. Inflation returned, yields repriced higher, and equities and bonds declined together. In 2022, this convergence produced the worst calendar-year outcome for the 60/40 portfolio on record, underscoring the need for a third return driver that behaves differently or can recover faster when the other two falter.

While gold has historically played this role and continues to have a place in balanced portfolios, digital assets offer an alternative that combines scarcity with exposure to technological adoption, producing a return profile that is structurally differentiated from traditional markets. 

Why Digital Assets Behave Differently in Portfolios  

Digital assets are best understood as an efficiency upgrade to financial infrastructure rather than an alternative financial system. Blockchain technology enables value to move with speed, auditability, and programmability. Within this framework, assets perform distinct economic roles, supporting the case for diversified exposure.

Bitcoin has emerged as the store-of-value anchor of the digital asset ecosystem, with its fixed supply underpins its role as “digital gold.” Having outperformed its physical predecessor in nearly every cycle, Bitcoin has firmly positioned itself within the broader store-of-value continuum. From a portfolio perspective, Bitcoin has exhibited low long-term correlation to traditional assets and a return distribution characterized by positive skew, where large positive outcomes occur more frequently than large negative ones. 

Ethereum extends this foundation by functioning as a programmable settlement layer for decentralized applications, including stablecoins, decentralized finance, and tokenized real-world assets. Through staking, Ether also introduces a yield component. Solana and XRP address different segments of financial infrastructure, with Solana optimised for high-throughput applications and XRP focused on improving cross-border payment efficiency within the existing banking system. 

Introducing 3iQ Optimized Core  

3iQ Optimized Core (OC) is an actively managed portfolio designed to provide diversified exposure to the digital asset ecosystem. It combines allocations to Bitcoin (30%), Ethereum (25%), Solana (25%), and XRP (20%), targeting differentiated sources of return rather than reliance on a single use case. The strategy incorporates quarterly, momentum-based rebalancing and captures staking yields where applicable, enhancing total return while managing volatility.

Within a broader portfolio, OC is intended to function as a flexible return driver. At times its behavior has aligned more closely with equity markets, while at other points it has exhibited characteristics closer to gold. 

From 2014 to 2016, OC behaved more like equities than gold. Between 2017 and 2020, correlations shifted toward gold, before rotating back toward equity-like behavior through 2025. These shifts reflect changing macro conditions rather than a fixed relationship to any single asset class.

How Optimized Core Interacts with a 60/40 Portfolio

When introduced into a traditional 60/40 portfolio, even at modest size, Optimized Core materially alters portfolio outcomes. A 3% allocation improves nominal returns, enhances risk-adjusted performance, and reduces downside volatility. Despite its small weight, the OC allocation contributes a disproportionate share of total portfolio returns over the analyzed period.

These effects stem from structural characteristics. Digital assets exhibit convex return behavior, recovering more rapidly from drawdowns than traditional assets. Quarterly rebalancing reinforces this dynamic by trimming exposure after sharp advances and reallocating during periods of weakness.

Optimized Core Versus Gold as a Diversifier 

As mentioned, gold has historically played an important role as a portfolio diversifier, particularly during periods of monetary stress. Its drawdowns often unfold gradually and can take extended periods to recover, introducing timing risk and opportunity cost.

By contrast, while drawdowns in Optimized Core can be more pronounced, recoveries have historically been faster. When paired with systematic rebalancing, this recovery profile improves long-term portfolio efficiency by reducing reliance on precise entry points.

Implications for Portfolio Construction 

As digital asset markets mature and real economic activity increasingly migrates onto public blockchains, crypto is becoming a more familiar input in institutional portfolio discussions. Within this context, a small, diversified allocation to Optimized Core can strengthen portfolio construction by introducing a return driver that responds differently to inflation, liquidity, and growth shocks.

For advisors and professional investors, the relevance lies in how these structural characteristics interact with traditional assets across regimes, improving resilience without requiring large changes to portfolio architecture.