Bitcoin’s Unique Properties Highlighted by BlackRock as IBIT Options Gain Approval
Bitcoin has been making significant gains in the market, with a 22% increase since the Yen carry trade unwind on Aug. 5. In comparison, traditional assets like gold and the S&P 500 have seen around an 11% increase during the same period. This surge in Bitcoin’s value has caught the attention of many investors and financial institutions, including BlackRock.
BlackRock, one of the world’s largest investment management firms, released a report last week titled “Bitcoin as a Unique Diversifier.” In this report, the firm highlighted the fundamental properties of Bitcoin that set it apart from traditional financial assets. One key aspect is that Bitcoin does not have a quarterly earnings report or a CEO, making it a decentralized and non-sovereign asset.
The report identified four key points regarding Bitcoin’s unique properties. First, it discussed how to analyze Bitcoin in relation to traditional financial assets due to its fundamental properties. Second, it highlighted Bitcoin’s high volatility, which can be perceived as a “risky” asset. This volatility contributes to the discussion of whether Bitcoin is a “risk-on” or “risk-off” asset. Despite its volatility, Bitcoin is considered a flight-to-safety option due to its scarcity and non-sovereign nature.
Furthermore, BlackRock pointed out that the long-term adoption of Bitcoin may stem from global instability. As the world faces various geopolitical and economic challenges, investors are looking for alternative assets like Bitcoin to diversify their portfolios and hedge against uncertainty.
Realized Volatility Trends Downwards
One notable trend in the Bitcoin market is the decreasing realized volatility over time. In the early years of Bitcoin, its realized volatility used to trade over 200%. However, as the asset matured, the volatility also decreased. Since 2018, Bitcoin’s realized volatility has not exceeded 100% and is currently at 50%. This trend indicates increased stability in the Bitcoin market.
As realized volatility decreases and liquidity increases through financial instruments like spot and futures markets, more sophisticated investors, including options traders, may enter the market. This trend is evident with the recent approval of physically settled options tied to BlackRock’s spot Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC).
Bitcoin: Annualized Realized Volatility (Glassnode)
Low Historical Correlation with U.S. Equities
Another key point highlighted by BlackRock is Bitcoin’s low historical correlation with U.S. equities. The average correlation between Bitcoin and the S&P 500 since 2015 is 0.2, indicating a minimal relationship between the two assets. While there may be short-term correlations due to external macro factors, these episodes have not produced a clear long-term statistically significant relationship.
Bitcoin’s low correlation with traditional equities makes it an attractive asset for portfolio diversification. Investors looking to hedge against market volatility and economic uncertainty may turn to Bitcoin as a risk-off asset within their investment strategy.
Bitcoin Outperforms Risk-On Assets After Major Events
BlackRock also noted that Bitcoin tends to outperform other risk-on assets after major geopolitical events. For example, during the U.S.-Iran escalation in 2020, Bitcoin returned 20% after 60 days, outperforming gold and the S&P 500. This trend was also observed during other significant events like the Covid-19 pandemic, the 2020 U.S. election challenges, and the Russian invasion of Ukraine.
Most recently, after the Yen carry trade unwind on Aug. 5, Bitcoin’s value surged by 22%, outperforming gold and the S&P 500, which saw an 11% increase. This demonstrates Bitcoin’s resilience and potential as a hedge against market instability and geopolitical risks.
S&P 500, Gold, and Bitcoin Returns Through Major Geopolitical Events (BlackRock)
In conclusion, Bitcoin’s unique properties and performance in the market have garnered the attention of institutional investors like BlackRock. As the digital asset continues to mature and gain mainstream acceptance, its role as a diversifier and hedge against traditional financial assets becomes more prominent. With increasing adoption and regulatory approval, Bitcoin’s value proposition as a store of value and risk-off asset is solidified in the financial landscape.
