Blackrock believes Bitcoin is a unique asset diversifier.
BlackRock has identified Bitcoin as a “unique diversifier” for investment portfolios in a recent 9-page report sent to clients on September 18. While acknowledging Bitcoin’s inherent risks, the document emphasizes its potential as an alternative reserve asset and suggests a small allocation of it in portfolios.
The report highlights Bitcoin’s distinct properties compared to traditional assets, particularly over the long term. Although the cryptocurrency tends to move in line with equities in the short term—such as during a Yen carry trade event in August when Bitcoin briefly dropped by 7%—the asset demonstrated resilience by quickly recovering.
BlackRock analysts explain that Bitcoin cannot be easily classified as either a “risk-on” or “risk-off” asset within traditional financial frameworks. Its global, decentralized, non-sovereign nature and fixed supply make it difficult to fit into these categories.
Bitcoin’s Performance and Returns
The document underscores Bitcoin’s exceptional returns, noting that it has outperformed other major asset classes in seven of the last 10 years, delivering an annualized return of over 100% during this time. Despite its volatility, Bitcoin has proven capable of bouncing back from significant market corrections, including four separate drawdowns of over 50%, and has eventually reached new highs.
BlackRock also highlights Bitcoin’s lack of a long-term correlation with equities, despite short-term fluctuations where this relationship can temporarily spike.
A Hedge Against Macro Risks
The report positions Bitcoin as largely insulated from major macroeconomic risks due to its decentralized and non-sovereign characteristics. These risks include crises in the banking system, sovereign debt defaults, currency devaluations, and geopolitical tensions. BlackRock CEO Larry Fink previously referred to Bitcoin’s rise in October 2023 as a “flight to quality,” supporting its potential use as a safe-haven asset.
Bitcoin is also seen as a hedge against potential instability in the U.S. dollar, particularly in light of growing concerns about federal debt and deficits. This makes Bitcoin an attractive alternative reserve asset for investors wary of traditional financial systems.
Risks and Portfolio Recommendations
Despite praising Bitcoin’s potential, BlackRock cautions investors about the risks associated with it. These risks are not solely due to its volatility but also stem from regulatory uncertainty and the evolving nature of its underlying technology.
The report suggests that while adding a small portion of Bitcoin to a traditional “60/40” portfolio—split between stocks and bonds—can improve risk-adjusted returns, larger allocations might increase portfolio volatility.
Overall, BlackRock’s document advocates for a cautious yet optimistic approach to Bitcoin, highlighting its advantages as a portfolio diversifier while acknowledging its risks.
