Bank of America supports 4% allocation to digital currencies as retail suffers losses

Bank of America (BofA) has formally approved a 1%-4% allocation to cryptocurrencies for its wealth management clients, signaling a fundamental shift in the way Wall Street approaches digital assets.

However, the move comes at a difficult time for retail investors, who now hold most of the Bitcoin ETF supply and are taking significant market losses.

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Bank of America opens the door to crypto exposure in the mainstream market

Bank of America will begin CIO investment manager coverage of four bitcoin ETFs, including BITB, FBTC, Grayscale Mini Trust, and IBIT, starting on January 5, 2026, Yahoo Finance reported on Tuesday.

This will enable more than 15,000 advisors at Merrill, Private Bank, and Merrill Edge to proactively recommend regulated cryptocurrency products for the first time.

“For investors with a strong interest in thematic innovation and comfort with high volatility, a light allocation of 1% to 4% in digital assets may be appropriate,” said Chris Hazey, CIO at Bank of America Private Bank.

He added that the guide emphasizes “regulated vehicles, thoughtful customization, and a clear understanding of opportunities and risks.”

Previously, clients could only access cryptocurrency ETFs on demand, a hurdle that left many retail investors seeking exposure elsewhere.

“The update reflects growing client demand for access to digital assets,” said Nancy Fahmy, head of BofA’s Investment Solutions Group.

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The Wall Street consensus is forming quickly

BofA’s guidance follows a broader institutional shift:

• Morgan Stanley recommends an allocation of 2%-4% to cryptocurrencies.
• BlackRock supports an allocation of 1%-2%.
• Fidelity suggests an allocation of 2%-5%, up to 7.5% for young investors.
• Vanguard now allows some cryptocurrency ETFs on its platform – a major philosophical coup.
• SoFi, Schwab, JPMorgan, and others now offer some form of access to ETFs or cryptocurrency services.

These changes are consistent with broad policy under the Trump administration, which has dismantled many… Restrictions imposed by the Biden administration On banks dealing with digital assets.

Many companies are waiting now Clarity from Congress In terms of custody, live trading, and broader services on the platform for cryptocurrencies.

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The retail sector is the hardest hit when markets turn red

The timing of Wall Street’s adoption is remarkable. Bitcoin has fallen about 33% since its peak of $126,000It has fallen by about 10% since the beginning of the year, although the S&P 500 index has risen by about 15%.

According to Bernstein, retail investors own about 75% of the assets of direct Bitcoin ETFs, making them the most exposed to price fluctuations.

Meanwhile, institutional ownership rose from 20% to 28%, reflecting a strategic move toward Bitcoin and Ethereum as retail investors capitulated.

New ETF launches are deep in the red

The recent wave of ETFs that focus heavily on altcoins have done worse:

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• All 11 new products are in the red, hurt by the loss of $600 billion in the Bitcoin market since October.
• The small-cap index of the top 50 crypto assets fell to its lowest level since November 2020.
• Performance: SSK -15%, BSOL -30%, DOJE -40%, with lower packages for XRP and other top 10 coins.

In this context, concerns remain regarding… How ETF LINK could do it.

“This looks like a combination of persistent losses for retail traders and poor timing for entrants,” Bloomberg said, citing City Index senior analyst Fiona Cincotta as warning that ETF wrappers could give smaller investors a “false sense of security.”

BofA’s move is a sign that the institutional era in cryptocurrencies is accelerating, bringing regulated exposure to millions of ordinary customers.

However, with individuals continuing to bear the biggest losses and ownership moving quickly towards ETF holders, market volatility can be high.

The next catalyst is likely to come from Washington, where pending legislation may limit the extent to which banks can integrate cryptocurrencies into their core services.