BlackRock calls Bitcoin ‘unique diversifier,’ dismisses risk label

BlackRock, the world’s largest asset manager, argues that Bitcoin is a unique asset class that can improve portfolio diversification and that its prices may be uncorrelated to other traditional stocks and assets in a new report.

Unique diversifier

The report comes as investors are finding ways around Bitcoin’s volatile and unpredictable nature. Moreover, the report, called ‘Bitcoin: A Unique Diversifier,’ shows that it behaves differently than traditional risk assets. It also finds that the digital asset is difficult to analyze with traditional economic frameworks.

The report argues that Bitcoin’s distinctive features, like the distributed nature and fixed number, set it apart from other conventional financial assets.

In the short term, Bitcoin prices correlate with other established markers like the S&P 500, but they often rally higher than others over time. Finding that the cryptocurrency shows volatility but remains mostly unaffected by other financial markets in the long term. The report analyses this pattern as an instance of “fundamentals eventually prevailing over short-term leveraged trading reactions.”

An instance of this was marked when bitcoin rose 22 percent since 5 August, while the Yen remained unmoved, and gold and the S&P 500 were up about 11 percent. This highlights that Bitcoin may be exclusive of regular market changes.

Bitcoin relatively safer

Bitcoin is decentralised, open-sourced, detached from traditional currencies, and major geopolitical risks. This makes the digital asset a relatively safer investment, similar to gold, amid political and economic instability. Robert Mitchnick, BlackRock’s head of digital assets and one of the authors of the report, said, “When we think about Bitcoin, we think about primarily as an emerging global monetary alternative.”

Bitcoin does not correlate to the value of the US dollar. This, as concerns over the US national debt rise, makes the digital asset an attractive alternative reserve asset. It can therefore help investors diversify their portfolios, the report claims.

Another key observation in the report is that a large number of Bitcoin holders are profitable. Data shows that the majority of investors who have held investments in the cryptocurrency for three years or more are currently experiencing profits.