BlackRock Pitches Bitcoin (BTC) as a 'Unique Diversifier” for Portfolios in a 9-Page Document

Asset manager BlackRock sent a 9-page document to its clients on Sept. 18 that portrays Bitcoin (BTC) as a “unique diversifier” for portfolios.

Asset manager BlackRock has sent a document to its clients highlighting Bitcoin's (BTC) unique diversification properties for long-term portfolios and suggesting a “modest allocation.”

The document, dated Sept. 18 and seen by Blockworks, explains that Bitcoin is distinct from traditional asset classes on any long-term basis and can be included in a portfolio to enhance its risk-adjusted return profile.

While BTC tends to move with equities in the short term — as seen during the early August Yen carry trade, which caused BTC to crash 7% in one day — BlackRock analysts noted that Bitcoin was quick to fully recover its losses.

Moreover, the document states that Bitcoin cannot be labeled as a risk-on or risk-off asset under most traditional finance frameworks, given its characteristics as a global, decentralized, and non-sovereign asset with a fixed supply.

Uncorrelated and extraordinary returns

BlackRock then proceeds to explain to new investors the story of how Bitcoin was created, the dynamics of its fixed supply, and its path to a $1 trillion market cap.

The document points out that BTC has outperformed major asset classes in seven out of the last 10 years. It also highlights the over 100% annualized return that Bitcoin gave investors over this period, calling it “extraordinary.”

Furthermore, the document highlights Bitcoin’s resilience to recover from major corrections despite its volatility, stating:

“This performance was achieved despite Bitcoin also being the worst performing asset in the other three of those 10 years, with four drawdowns in excess of 50%. Through these historical cycles, it has shown an ability to recover from such drawdowns and reach new highs, despite these extended bear market periods.”

The document also reiterates that Bitcoin has no statistical correlation with equities in the long term, even though the relationship spikes in the short term.

Flight to safety

BlackRock also tells its investors that Bitcoin is largely unaffected by critical macro risk because it is a decentralized and non-sovereign monetary alternative. These macro “black swan” events include banking system crises, sovereign debt crises, currency debasement, and geopolitical disruption.

The document goes on to highlight BlackRock CEO Larry Fink’s remarks from October 2023, when he stated that a BTC rally at the time was a “flight to quality.”

Additionally, it explains that Bitcoin could be used as a hedge against possible US dollar instability, as federal debt and deficit fears make alternative reserve assets more appealing to investors.

Despite the various compliments on Bitcoin’s characteristics and strengths, BlackRock analysts said that Bitcoin is still a risky asset on its own. They added that the risks are not just related to volatility but also to regulatory uncertainties and its underlying technology.

Nevertheless, in a traditional “60/40 portfolio” divided between equities and bonds, the document suggested that modest allocations to Bitcoin can enhance risk-adjusted returns, while larger allocations may increase volatility.

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