Asset management firm BlackRock sent a nine-page memo to clients on Sept. 18, describing Bitcoin (BTC) as a “unique diversifier” for portfolios.
The document highlighted Bitcoin’s long-term characteristics that set it apart from traditional asset classes and suggested a “moderate allocation.”
While BTC moves alongside stocks in the short term, as was the case during the yen carry trade in early August when BTC crashed 7% in one day, BlackRock analysts highlighted that Bitcoin quickly recovered to previous price levels.
Additionally, the document states that due to Bitcoin's characteristics as a global, decentralized, non-sovereign asset with a fixed supply, it cannot be classified as a risk-on or risk-off asset under most traditional monetary frameworks.
Uncorrelated extraordinary returns
BlackRock went on to explain to new investors how Bitcoin was created, the dynamics of its fixed supply, and its path to a $1 trillion market cap.
The document noted that BTC has outperformed major asset classes in seven of the past decade, highlighting the more than 100% annualized returns Bitcoin has provided investors during that period, calling them “extraordinary.”
Additionally, the document emphasizes that despite Bitcoin's volatility, it is resilient to recover from major corrections, stating:
“Bitcoin has achieved this performance despite being the worst-performing asset in the other three years of the decade, with four declines of over 50%. Throughout these historical cycles, Bitcoin has demonstrated the ability to recover from such declines and reach new highs, despite prolonged bear markets.”
The document also reiterated that while the relationship between Bitcoin and stocks may see short-term spikes, there is no statistical correlation in the long term.
Escape to Safety
BlackRock also told investors that because Bitcoin is a decentralized, non-sovereign currency, it is largely immune to significant macro risks. These macro “black swan” events include a banking system crisis, a sovereign debt crisis, currency depreciation, and geopolitical upheaval.
The document reiterated comments made by BlackRock CEO Larry Fink in October 2023, when he said that the BTC rally at the time was a “flight to quality.”
Additionally, he explained that Bitcoin could be used as a hedge against potential instability in the U.S. dollar, as concerns about federal debt and budget deficits make alternative reserve assets more attractive to investors.
Despite all the praise for Bitcoin's properties and strengths, BlackRock analysts said it remains a risky asset in itself, adding that risks are not just related to volatility but also regulatory uncertainty and its underlying technology.
Still, in a traditional “60/40 portfolio” split between stocks and bonds, a modest allocation to Bitcoin could boost risk-adjusted returns, while a larger allocation could increase volatility, the document suggests.
