ETF Model Portfolios: The Bitcoin Barbell

90% in Treasury Bills

Despite all the noise around U.S. fiscal health, from credit rating downgrades to rising national debt and concerns about foreign demand, Treasury bills remain the benchmark for so-called risk-free returns.

That is because they are backed by the full faith and credit of the U.S. government and sit at the very front of the yield curve, where interest rate and credit risks are minimal.

Treasury bills are short-term debt instruments with maturities of one year or less. Unlike longer-term Treasury bonds, they do not pay semi-annual coupons. Instead, they are issued at a discount and mature at face value, with the difference representing the investor’s return.

When packaged into an ETF, particularly at the very short end of the curve, the result is a relatively stable net asset value. It is not fixed, but it tends to move in a very tight range, reflecting the low duration and rapid turnover of the underlying holdings.

A good example is the iShares 0-3 Month Treasury Bond ETF

. With a 0.09% expense ratio, it offers exposure to ultra-short-term Treasury bills. Its net asset value typically hovers around $100, gradually increasing as interest accrues, then dropping on the ex-distribution date as income is paid out.

SGOV currently offers a 3.54% 30-day SEC yield after fees, broadly in line with prevailing short-term interest rates. In this portfolio, it serves as the stable anchor, providing liquidity, income, and a source of capital to rebalance into Bitcoin during drawdowns.

10% in Bitcoin

For the Bitcoin allocation, you could go direct by purchasing and holding the asset through a crypto exchange or cold storage. The challenge is operational. Rebalancing, custody, and execution are not as straightforward compared to traditional securities.

That is where spot Bitcoin ETFs can be useful. They provide a simple, brokerage-friendly way to gain exposure without dealing with wallets or private keys.

The largest and most widely adopted option is the iShares Bitcoin Trust ETF

. Since launching on January 5, 2024, it has grown rapidly to approximately $53 billion in assets under management, even after experiencing some volatility during the most recent crypto downturn.

The structure is simple. The ETF holds Bitcoin directly with a custodian and aims to track its price during market hours. From a trading standpoint, it is highly liquid, with a 0.03% 30-day median bid-ask spread and significant trading volume.

Another notable feature is that IBIT was among the first spot Bitcoin ETFs to have listed options, adding an additional layer of flexibility for more advanced investors.

In this portfolio, Bitcoin represents the high-risk, high-upside side of the barbell, while Treasury bills provide stability and rebalancing capital on the other end.

Putting it together

To test this out, I plugged a 90% allocation to SGOV and 10% to IBIT into ETF Central’s model portfolio tool, using a monthly rebalancing frequency.

The first thing that stands out is cost. The weighted average expense ratio comes in at just 0.106%. That is before any brokerage commissions or potential tax implications from the monthly rebalancing, both of which are worth keeping in mind depending on how you implement this.

For comparison, I used the Compass Crypto Reference Index Bitcoin in U.S. dollars as the benchmark, essentially representing a pure Bitcoin exposure. The backtest period is naturally limited by IBIT’s launch date, but even over this shorter window, the results are quite revealing.

Holding Bitcoin outright would have delivered a 40.47% cumulative return versus 16.44% for the barbell portfolio. That gap is expected. You are giving up upside by holding 90% in Treasury bills.

Where things get interesting is on the risk side. Volatility drops dramatically, from 46.9% for Bitcoin down to just 5.03% for the portfolio. That leads to a much stronger risk-adjusted return, with a Sharpe ratio of 1.41 compared to just 0.35 for Bitcoin.

Across multiple risk measures, the improvements are consistent. Downside volatility is materially reduced. Value at risk metrics, whether measured historically, through Gaussian assumptions, or more advanced methods, are all lower. Skewness and kurtosis, which measure the asymmetry of returns and the likelihood of tail events, are also dampened, indicating a smoother distribution of outcomes.

You can also see this in the drawdown profile. The barbell structure holds up far better during periods of stress, with shallower and shorter drawdowns compared to holding Bitcoin outright.

This is not a portfolio designed to maximize returns. If your goal is to fully capture Bitcoin’s upside, this will lag. But as a side allocation, it offers a more controlled way to gain exposure to a highly volatile asset.

For investors looking to ease into Bitcoin, or those who prioritize a risk-first approach, this is a practical way to apply time-tested portfolio construction principles to a very modern asset class.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.