Asset management giant BlackRock released the (2025 Global Outlook) report, which mentions Bitcoin's potential as a new diversification tool, as its low correlation with stocks may make it a potential tactical hedge against gold. Looking ahead to 2025, BlackRock remains optimistic about the U.S. stock market and believes AI will still be the focus in 2025.
Limitations of traditional diversification tools
The unstable correlation between stock and bond returns defines a new economic regime, with government bonds no longer reliably serving as a buffer against stock sell-offs. BlackRock believes that traditional diversification tools like gold and emerging diversification tools like Bitcoin have the potential to become new sources of risk and return. However, this is not about replacing long-term bonds for diversification, but rather seeking new and unique sources of risk and return.
Bitcoin has a low correlation with stocks
The potential of Bitcoin as a new diversification tool comes from its unique value drivers: potential appreciation when the planned supply meets growth demand, with demand based on investors' belief in Bitcoin's widespread adoption as a payment technology. For example: Bitcoin hit an all-time high after the U.S. elections, reflecting increased investor confidence in the likelihood of widespread Bitcoin adoption due to Trump's past support for Bitcoin and other cryptocurrencies. These unique drivers should keep its correlation with stocks and other risk assets low in the long term.
The above image shows that the correlation between Bitcoin and the global stock market (red line) remains limited, even after soaring to 50% at one point in 2022, it has now fallen back to 15%. Given Bitcoin's unique value drivers, BlackRock believes there is no inherent reason for Bitcoin to be long-term correlated with major risk assets.
Bitcoin as a potential tactical hedge tool
The report mentions that the risk and return characteristics of Bitcoin may change with its widespread adoption, at which point it may be more suitable as a tactical hedge against specific risks, like gold.
Gold has soared as investors seek to combat high inflation, and some central banks are also looking for alternatives to the major reserve currency. BlackRock believes it is crucial to monitor the performance changes of these alternatives relative to traditional asset classes and to use them flexibly.
(The rise of digital gold, can Bitcoin replace gold as a national reserve or a tool for de-dollarization?)
BlackRock's investment recommendations for 2025
In the second half of 2024, stocks reached an all-time high, primarily led by large tech stocks. This was followed by a hard landing scenario with deep interest rate cuts (Note: referring to the significant correction in August), indicating that the typical business cycle perspective does not apply to the current environment. The current investment environment is undergoing a significant transformation, and the traditional 60/40 stock and bond portfolio may no longer be applicable.
Looking ahead to 2025, BlackRock is very confident in the strength and performance of U.S. companies, as U.S. stocks continue to outperform their global peers, which may continue. The U.S. benefits from tremendous strength driving corporate earnings, supported by favorable growth prospects, potential tax cuts, and regulatory easing.
AI will still be the focus in 2025, and the tremendous power of AI will benefit U.S. stocks more. As for stock markets in other countries, BlackRock is optimistic about Japan and China, while adopting a bearish stance on Europe.
BlackRock also pointed out that the potential increase in the U.S. budget deficit adds to ongoing fiscal pressure, thus favoring government bonds from other developed markets or corporate bonds, as they provide quality income and have relatively healthy balance sheets.
This article, BlackRock's 2025 Investment Outlook: Bitcoin as a New Diversification Tool, first appeared in Chain News ABMedia.
