Is Bitcoin a Risk-On Asset or a Safe Haven? BlackRock: It Could Be a Global Currency Substitute

Is Bitcoin a Risk-On Asset or a Safe Haven? BlackRock: It Could Be a Global Currency SubstituteDespite Bitcoin's recent price movements showing a high correlation with the US stock market, BlackRock, the world's largest asset manager, believes it may be inaccurate to classify it as a "risk-on" asset. Instead, it may be more accurate to consider it a "safe haven" asset

Is Bitcoin a Risk-On Asset or a Safe Haven? BlackRock: It Could Be a Global Currency Substitute

Despite Bitcoin's recent price movements showing a high correlation with the US stock market, BlackRock, the world's largest asset manager, believes it may be inaccurate to classify it as a "risk-on" asset. Instead, it may be more accurate to consider it a "safe haven" asset.

Typically, stocks, commodities, and high-yield bonds are considered risk assets because they perform well during periods of market optimism and economic expansion. During times of uncertainty, safe haven assets like gold tend to be favored by investors.

Robbie Mitchnick, head of digital assets at BlackRock, believes: Bitcoin is not controlled by any country or government. Its a scarce, decentralized asset. So, when we think about Bitcoin, we primarily think about it as an emerging global currency substitute. Its a scarce, global, decentralized, non-sovereign asset. It has no country-specific risk, no counterparty risk.

BlackRock also explained the issue of Bitcoin's correlation with risk assets in a recent white paper. The firm stated that Bitcoin has a weak fundamental correlation with other macroeconomic variables, explaining why it has a low average long-term correlation with stocks and other risk assets.

While BlackRock acknowledges that Bitcoin's correlation has increased in some short periods, especially during sudden shifts in real US interest rates or liquidity, these are only short-term phenomena and do not establish a clear long-term statistically significant correlation.

BlackRock believes that as a new technology, Bitcoin is still in its early stages of widespread adoption, and its future as a global payment asset or store of value remains to be determined. Additionally, Bitcoin has experienced wild volatility and faces various risks, such as regulatory challenges, uncertainty regarding its adoption path, and an immature ecosystem.

Despite acknowledging that Bitcoin remains a high-risk asset, BlackRock points out that these risks are unique to Bitcoin and not prevalent in traditional investment assets. Therefore, the simple "risk-on" versus "risk-off" framework may not apply to Bitcoin.

On the other hand, Mitchnick said in a recent interview that while many investors see Bitcoin as "digital gold" which allows it to retain value during periods of stress, many institutional clients are less clear about Ethereum. Ethereum is used by various applications on its associated blockchain.

Year-to-date, Bitcoin is up 49% and Ethereum has increased by 15%, largely fueled by the approval of spot ETFs for both cryptocurrencies earlier this year.

Further Breakdown of BlackRock's View:

• Bitcoin as a Global Currency Substitute": BlackRock emphasizes Bitcoin's decentralization, scarcity, and global nature, seeing it as an emerging asset with the potential to replace traditional currencies.

• Bitcoin's Correlation with Risk Assets: BlackRock points out that Bitcoin has a weak correlation with other macroeconomic variables, suggesting it may not be a traditional "risk-on" asset.

• Bitcoin's Risks: BlackRock acknowledges that Bitcoin still faces various risks, including regulatory challenges, uncertainty regarding its adoption path, and an immature ecosystem.

• Ethereum's Ambiguous Status: BlackRock observes that institutional investors have mixed views on Ethereum, requiring more time to observe its development.

Conclusion:

BlackRock's view suggests that Bitcoin, as an emerging asset, has properties and risk characteristics distinct from traditional assets. It may not fully fit into the "risk-on" or "risk-off" classifications but, with its unique attributes, exhibits the potential to become a "global currency substitute."

However, Bitcoin still faces various challenges and risks, and its future direction remains to be seen. Institutional investors' views on Ethereum remain unclear, requiring more time to observe its applications and development.