Is Bitcoin a “risk-on” or “safe-haven” asset? Analysts at BlackRock, the world’s leading asset manager, say the digital currency doesn’t quite fit into either category.
In a report published Wednesday, BlackRock noted that its clients largely view Bitcoin as a hedge against a potential U.S. debt crisis. At the same time, Bitcoin has “little direct correlation” to the macro variables that affect other asset classes. Bitcoin’s defining characteristics, according to BlackRock, include its limited supply, global nature, and ease of cross-border transfer.
“Growing concerns in the US and globally about the US government’s deficit and debt situation have increased the appeal of alternative reserve assets as a hedge against events that could impact the US dollar.”
“From our experience working with clients, we see this as a key reason driving the growing institutional interest in Bitcoin.”
Currently, according to US Debt Clock , the United States is facing a debt of up to $35 trillion and an annual budget deficit of $2 trillion. Both Republican Senator Cynthia Lummis and former President Donald Trump have suggested that Bitcoin could play a Vai in reducing the national debt by building a strategic reserve of 1 million BTC.
BlackRock experts describe Bitcoin as a “non-sovereign currency solution,” less affected by “systemic banking crises, sovereign debt crises, currency devaluations,” and “geopolitical volatility.” In the long run, they predict that Bitcoin adoption will increase as concerns about these crisis events increase.
This analysis is consistent with the long-standing view that Bitcoin is a safe haven and uncorrelated asset. In the past, Bitcoin proponents have argued that in times of crisis and when the US dollar weakens, investors will turn to scarce assets like Bitcoin. However, in reality, Bitcoin has not fully fulfilled this Vai in recent years.
Since at least 2020, after the pandemic-driven market crash in March of that year, Bitcoin has traded roughly in tandem with Wall Street, especially tech stocks. In terms of “geopolitical volatility,” Bitcoin fell 6% in the 10 days following Russia’s invasion of Ukraine in 2022, but then rose a net 15% over the next 60 days.
BlackRock explains that these contradictions stem from Bitcoin's novelty as an asset, as well as its high liquidation during times of panic, compared to less liquidation assets like real estate.
For now, BlackRock still considers Bitcoin a “risky” asset due to regulatory volatility and the emerging nature of the technology, but these risks are not quite the same as other types of investments.
“In our view, simple frameworks such as ‘risk’ or ‘safety’ are not sophisticated enough to fully capture the nature of Bitcoin,” BlackRock experts said.
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