BlackRock Highlights Bitcoin’s Unique Properties, Believes BTC is Risk-Off in the Long Term

As a seasoned crypto investor with over a decade of experience in this dynamic market, I can confidently say that the recent trends and insights presented in the report by BlackRock have only solidified my belief in the long-term potential of Bitcoin.

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BlackRock released a report last week, titled “bitcoin as a unique diversifier.”

One method of rephrasing for easier understanding: The large investment firm found four essential takeaways from the study. Initially, they focused on evaluating Bitcoin (BTC) in comparison with conventional financial assets, considering its unique characteristics like lacking a regular earnings statement or designated CEO.

In the second place, Bitcoin’s significant price fluctuations might lead some to view it as a “speculative” investment, sparking debates about whether it should be categorized as a “risk-taking” or “risk-averse” asset. However, due to its scarcity, independence from any government, and decentralized nature, Bitcoin could also serve as a refuge during times of economic turmoil. Lastly, BlackRock suggests that Bitcoin’s lasting acceptance might stem from global instability in the long run.

Bitcoin’s realized volatility trends downwards

Over time, Bitcoin’s price stability has been on the rise, as its realized volatility decreases. Initially, this volatility was significantly high, often exceeding 200%. But as Bitcoin has grown and matured, so too has its market stability.

Starting from 2018, the realized volatility has not gone beyond 100% and is presently at 50%. As this volatility declines and market liquidity grows thanks to financial tools like spot and futures markets, it could attract more experienced investors, including options traders. This scenario appears imminent with the U.S Securities and Exchange Commission’s (SEC) approval of physically settled options linked to BlackRock’s spot bitcoin ETF, potentially opening up new investment opportunities for sophisticated players.

Risk-on or risk-off?

BlackRock posed the query: Does bitcoin lean more towards risky assets (risk-on) or safer ones (risk-off)? Although short-term trading might indicate that bitcoin behaves like a risky asset, an analysis over a prolonged period tells a different story.

Based on information from the Bitcoin storage service Unchained, it’s nearly certain (over 99%) that individuals who have held Bitcoin for at least three years have made a profit. Furthermore, all those who have held Bitcoin for five years or more are also in a profitable position.

A significant portion of Bitcoin investors are keeping their assets on the blockchain for over a year, as indicated by Glassnode’s data. This pattern implies that numerous investors believe in Bitcoin’s story as a store of value and consider it a safe-haven asset, despite experiencing frequent 20% corrections in the year 2024.

Low historical correlation with U.S equities

BlackRock’s analysis reveals that Bitcoin has a minimal connection with U.S. stocks, as demonstrated by the chart presenting the past six-month correlation between the S&P 500 and Bitcoin. The typical correlation value since 2015 is 0.2. In specific situations like market downturns or liquidity crises, assets might show a strong relationship due to external economic factors, but generally, they tend to behave differently.

The report indicates that these occurrences have been temporary and have not established a robust, long-term statistical connection.

Bitcoin outperforms other risk-on assets after major events

Continuing with the theme of having a long-term time preference, BlackRock noted that bitcoin tends to outperform other risk-on assets after 60 days following a major geopolitical event.

2020 saw significant global events such as the escalation between the U.S. and Iran, the Covid-19 pandemic, the U.S. election challenges, the Russian invasion of Ukraine, the regional banking crisis in the U.S., and the unwinding of the Yen Carry trade on Aug. 5. During these turbulent times, bitcoin managed to outshine other investments like gold and the S&P 500, delivering a return of approximately 20% within a 60-day period.

53 days ago, on August 5th, a significant unwinding of the Yen carry trade occurred, leading to a drop in major assets that day. Interestingly, however, Bitcoin has seen a surge of 22% since then, while gold and the S&P 500 have also increased by approximately 11%. In simpler terms, after the event on August 5th, Bitcoin, gold, and the S&P 500 have all experienced significant growth.