In a groundbreaking report titled “Bitcoin as a Unique Diversifier,” investment giant BlackRock delved into the nuances of Bitcoin’s (BTC) role in the global financial ecosystem. Released last week, the report identified four key points about Bitcoin’s properties, long-term value, and position as an investment asset. Here’s a closer look at what BlackRock had to say and why it matters.
Bitcoin’s Fundamental Differences From Traditional Assets
BlackRock’s first point was that Bitcoin stands apart from traditional financial assets because it doesn’t operate like a typical company. There’s no quarterly earnings report, no CEO, and no corporate governance to speak of. Instead, Bitcoin is driven by its decentralized nature and fixed supply, which makes it harder to analyze in the same way as stocks or bonds.
This difference forces investors to approach Bitcoin differently. Its scarcity and decentralized nature align it more with commodities like gold, often seen as a hedge against inflation or economic instability.
One of the most debated aspects of Bitcoin is its high volatility, often making it appear “risky.” According to BlackRock, this volatility adds complexity to the debate on whether Bitcoin is a “risk-on” or “risk-off” asset. Traditionally, a risk-on asset performs well when investors are more confident, while a risk-off asset gains favor during periods of uncertainty.
But BlackRock’s analysis suggests that while Bitcoin may behave like a risk-on asset in the short term, its long-term narrative is different. Due to its scarcity, non-sovereign nature, and decentralized design, Bitcoin may increasingly be viewed as a flight-to-safety asset, particularly during periods of global instability.
Moreover, data from Bitcoin custody service Unchained shows that most long-term holders (99%+) have profited if they held the asset for at least three years, reinforcing its appeal as a store of value.
Realized Volatility Trends Downwards
Bitcoin’s early years were marked by extreme price swings, with realized volatility trading over 200%. However, as the market matured, so did Bitcoin’s stability. Since 2018, realized volatility has remained below 100% and is currently at 50%, signaling a gradual reduction in unpredictability.
As Bitcoin’s volatility declines, it becomes more attractive to institutional investors, particularly options traders. With the U.S. Securities and Exchange Commission (SEC) recently approving physically settled options tied to BlackRock’s spot Bitcoin ETF, the path toward broader institutional adoption is becoming clearer.
A key takeaway from the report is Bitcoin’s low historical correlation with U.S. equities. Since 2015, the average correlation between Bitcoin and the S&P 500 has hovered around 0.2, meaning Bitcoin often moves independently of traditional markets.
This is particularly important during times of financial stress. While assets sometimes trade together during liquidity crunches, BlackRock notes these episodes are usually short-lived and fail to establish a long-term correlation. In the big picture, Bitcoin’s low correlation strengthens its case as a unique diversifier in investment portfolios.
Bitcoin Outperforms After Major Global Events
One of the most compelling insights from the BlackRock report is Bitcoin’s tendency to outperform other risk-on assets after major geopolitical events. For instance, after the U.S.-Iran tensions in 2020, Bitcoin returned 20% in 60 days, outpacing both gold and the S&P 500.
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Similar patterns followed the COVID-19 pandemic, the 2020 U.S. election, the Russian invasion of Ukraine, and most recently, the Yen Carry trade unwind on August 5, 2024. Since then, Bitcoin has surged by 22%, surpassing the performance of gold and the S&P 500, which rose by roughly 11%.
A Unique Investment Case
BlackRock’s report solidifies Bitcoin’s position as a unique asset, distinct from both traditional equities and commodities. While its high volatility can be intimidating, its long-term potential as a diversifier and hedge against global instability is becoming clearer. As more institutional investors enter the market, Bitcoin could see further adoption as a safe haven in an increasingly uncertain world.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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