On September 18, asset management giant BlackRock released a comprehensive 9-page report aimed at its clientele, characterizing Bitcoin (BTC) as a “unique diversifier” for investment portfolios.
The report emphasizes the attributes that distinguish Bitcoin from traditional asset classes over the long term and advocates for a “modest allocation” within diversified portfolios.
Despite Bitcoin’s tendency to fluctuate with equities in the short run—as evidenced by its 7% plunge in early August due to the Yen carry trade—BlackRock’s analysts noted that Bitcoin exhibited a swift recovery to its prior price levels.
Furthermore, the document argues that Bitcoin defies typical categorizations within traditional finance paradigms, operating as a global, decentralized, and non-sovereign asset with a capped supply.
Bitcoin: Uncorrelated Asset with Extraordinary Returns
In their report, BlackRock detailed the inception of Bitcoin, its limited supply dynamics, and its ascendance to a $1 trillion market capitalization.
Importantly, the document pointed out that Bitcoin has outperformed major asset classes in seven out of the last ten years, showcasing an impressive annualized return exceeding 100% during this time span, a feat described as “extraordinary.”
Moreover, despite its volatility, Bitcoin has shown remarkable resilience in recovering from significant price corrections. The report stated:
“This performance was achieved despite Bitcoin also being the worst performing asset in three of those ten years, facing four drawdowns surpassing 50%. Historically, it has demonstrated an ability to recover from such downturns and reach new highs even after protracted bear markets.”
The analysis also reiterated that, in the long term, Bitcoin displays negligible statistical correlation with equities, although short-term relationships may spike.
Bitcoin as a Safe Haven Asset
BlackRock advised its investors that Bitcoin remains largely immune to significant macroeconomic risks, acting as a decentralized and non-sovereign monetary alternative. These macro “black swan” events can include crises in the banking sector, sovereign debt instability, currency devaluation, and geopolitical turmoil.
The document echoed comments from BlackRock CEO Larry Fink, who described a recent Bitcoin rally as a “flight to quality.”
Additionally, the analysis posited that Bitcoin serves as a potential hedge against declining US dollar stability, particularly amid growing concerns regarding federal debt and deficits, which heighten the attractiveness of alternative reserve assets.
While lauding Bitcoin’s numerous strengths and characteristics, BlackRock analysts cautioned that it remains a risky asset. Risks are not confined solely to volatility but extend to regulatory uncertainties and inherent technological challenges.
Nevertheless, the report suggested that even within a traditional “60/40 portfolio” composed of equities and bonds, modest allocations to Bitcoin could enhance risk-adjusted returns, while larger allocations might escalate volatility.