Bitcoin offers diversity for traditional investors: BlackRock

• BlackRock released a white paper suggesting Bitcoin as a unique diversifier and why it attracts investors.
• The paper argues that Bitcoin can neither be described as a risk asset nor a risk asset.
• BlackRock suggests Bitcoin can serve as a hedge against US federal deficits and debt.

Bitcoin (BTC) is trading above $60,000 on Wednesday following the release of BlackRock’s latest white paper, which addresses some of the top crypto assets’ unique advantages for investors compared to traditional asset classes.

Bitcoin’s potential as a decentralized asset

In its research paper, “Bitcoin: A Unique Diversifier,” trillion-dollar asset manager BlackRock examined Bitcoin’s 15-year investment history and how it offers unique characteristics that set it apart from other asset classes.

BlackRock suggested that Bitcoin does not fall into the risk-on or risk-free asset class, largely because its long-term return drivers are unrelated to other sources.

“While bitcoin has shown instances of short-term co-movement with stocks and other ‘risk assets’, over the long term, its fundamentals are totally different, and in many cases inverted, to most traditional investment assets,” wrote BlackRock analysts.

Bitcoin Correlation with US Stocks

The paper also states that Bitcoin’s long-term correlation with traditional assets such as bonds and stocks has been low, but its historical returns have been higher than those of any other asset class. In seven of the last ten years, Bitcoin has outperformed every other major asset class, making returns of over 100%.

However, three of those ten years involved cycles where Bitcoin haunted these other assets, finishing as the worst performing asset. This was characterized by four discounts where its price fell below 50%.

Bitcoin’s Long-Term Performance

In addition, BlackRock notes that Bitcoin’s uniqueness as a non-sovereign, decentralized and fixed-supply asset makes it a good alternative to traditional financial assets. One reason for this conclusion is Bitcoin’s uncorrelation with the wealth of any country or centralized system. This makes it reliable in times of macroeconomic crises such as banking crises, currency devaluation and sovereign economic crises.

In addition, the paper considers Bitcoin’s role as an alternative to the US dollar, particularly due to heightened investor concerns about US federal deficits and debt. This is also prevalent in other countries with increasing debt accumulation, prompting investors to seek an uncorrelated reserve asset.

“Because of these attributes, bitcoin has been seen by some investors as a ‘flight to safety’ in times of fear amid some of the most disruptive global events of the past five years,” BlackRock noted.

However, analysts noted that Bitcoin’s benefits come with several risks, including high volatility, unclear regulatory status and a relatively new technology with an “immature ecosystem.”