While bitcoin has demonstrated short-term fluctuations alongside stocks and other risky assets, a new BlackRock white paper suggests its fundamentals are “drastically different” over the long term, making it a “unique diversifier” .
“We maintain this belief even if the short-term trading behavior of the market sometimes deviates (in some cases profoundly) from what the fundamental characteristics of Bitcoin suggest.”
It is worth noting that the cryptocurrency was not immune to market sell-offs last month, seeing a 7% one-day decline, compared to a 3% drop in the S&P 500 on August 5 .
This episode, BlackRock observed, coincided with a series of Bitcoin-specific events that had already unfolded over the preceding days.
Despite this volatility, the asset manager observed that bitcoin’s long-term correlation with stocks and bonds was low, and its long-term historical returns were “significantly higher” than all major asset classes. assets.
“While there have been brief periods in which Bitcoin has seen its peak in correlation – particularly episodes of sudden changes in real interest rates or US dollar liquidity – these episodes have been of a nature to short term and failed to produce a statistically significant correlation relationship in the long term,” the asset manager said.
BlackRock highlighted that Bitcoin, despite being the worst performing asset in three of the last 10 years and experiencing four losses greater than 50%, has outperformed all major asset classes over seven of those years, achieving an impressive annualized return of more than 100 percent. hundred.
Looking at its performance during major geopolitical events, BlackRock revealed that the asset plunged 25 percent in the 10 days following the COVID-19 outbreak on March 11, but rebounded to achieve a return of 21 percent over the next 60 days.
In contrast, over the same period, the S&P 500 and gold fell 20 percent and 9 percent, respectively, and climbed to gains of 2 percent and 3 percent over the next 60 days.
More recently, the analysis found that bitcoin also showed resilience following the Russian invasion of Ukraine on February 24, 2022, initially falling 6% in the 10 days following the event, but rebounding to generate a 15% return in May.
“In most cases…bitcoin returned to its previous level within a few days or weeks, and in many cases it rose again,” he said.
However, BlackRock warned that bitcoin is “still a very risky asset” and remains an “emerging technology.”
“Bitcoin has also been volatile and subject to myriad risks, including regulatory challenges, uncertainty about the path to adoption, and a still immature ecosystem,” it says.
“However, the key point is that these risks are unique to Bitcoin and are not specifically shared by other traditional investment assets.”
BlackRock highlighted that Bitcoin serves as a notable case study illustrating the limitations of risk-free and risk-free asset frameworks, noting that while modest allocations of Bitcoin can diversify portfolios, larger positions can increase overall portfolio risk. due to its high volatility.
Earlier this year, BlackRock CEO Larry Fink described himself as a “true believer” in cryptocurrency, lending his support to bitcoin in an interview with CNBC.
Since the start of the year, the company’s iShares Bitcoin Trust ETF, listed on NYSE Arca following the US SEC’s approval of Bitcoin ETFs in January, has seen significant inflows. Its net assets now exceed $22 billion.
