Is Bitcoin a risk-on or risk-off asset? Analysts at the world's largest asset manager BlackRock say the leading digital currency is neither.
In a PowerPoint published Wednesday, BlackRock said its clients primarily view Bitcoin as a hedge against a potential U.S. debt crisis, and that Bitcoin has “little fundamental exposure” to the macro variables that impact other asset classes. BlackRock analysts noted that some of its defining characteristics are Bitcoin’s limited supply, its global nature, and its ease of transfer across borders.
“Growing concerns in the U.S. and abroad about the state of the U.S. federal budget deficit and debt have increased the attractiveness of potential alternative reserve assets as a potential hedge against potential future events affecting the U.S. dollar,” BlackRock analysts wrote.
“In our experience with clients to date, this explains much of the recent expansion of institutional interest in Bitcoin,” they added.
The United States currently has $35 trillion in debt, with an official annual budget deficit of $2 trillion, according to US Debt Clock. Both Republican Senator Cynthia Lummis and former President Donald Trump have recommended using Bitcoin to pay down the national debt by creating a strategic Bitcoin reserve of 1 million BTC.
The report's authors described Bitcoin as a "non-sovereign monetary alternative" that is largely decoupled from both "banking and sovereign debt crises, currency debasements," and "geopolitical upheavals." Over the long term, they see Bitcoin's popularity growing in proportion to concerns about these crisis events.
The analysis is consistent with the long-standing view of Bitcoin as an “uncorrelated” safe haven asset. For years, Bitcoin proponents have argued that in tough times and as the U.S. dollar weakens, investors will flock to scarce assets like Bitcoin. But in practice, Bitcoin has behaved differently in recent years.
Since at least 2020, and after the pandemic-induced market crash in March of that year, Bitcoin has traded almost in line with Wall Street, and especially tech stocks. In terms of “geopolitical shocks,” Bitcoin fell 6% in the 10 days following Russia’s 2022 invasion of Ukraine, but has posted a net gain of 15% by the 60-day mark.
BlackRock attributes these apparent contradictions to Bitcoin's immaturity as an asset, as well as its "high sellability" during periods of panic compared to less liquid assets such as real estate.
For now, BlackRock says Bitcoin is still a “risky” asset due to regulatory changes and its status as a new technology. However, the asset manager says these risks do not apply to other investment classes.
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