Bitcoin's correlation with the stock market is “close to zero,” according to a BlackRock crypto executive. The world's largest asset manager views bitcoin as an “emerging global monetary alternative”. The case for Ether is less clear for institutional investors.
According to BlackRock crypto executive Robert Michnick, the crypto world faces an “own goal”: convincing investors that bitcoin is a “risk-on” asset like equities despite its low long-term correlation with the stock market.
“Some crypto research-type publications and daily commentaries have extrapolated to say that bitcoin is a risky asset and therefore a risk-on asset and should be traded like equities,” Michnick, BlackRock's head of digital assets, told Bloomberg TV on Wednesday.
In fact, he said, Bitcoin's long-term correlation with the stock market is “close to zero.” In that way, it is like gold, a traditional asset to which it is often compared.
“Gold shows the same patterns where you have these temporary periods where it goes up, but over the long term it's close to zero,” he said of its correlation with the stock market.
BlackRock is the world's largest asset manager with nearly $11 billion in assets under management, according to its latest quarterly report.
Despite initially being skeptical of bitcoin, BlackRock founder and CEO Larry Fink has repeatedly said he sees the “tokenization” of traditional assets — putting them on blockchains — as the “next generation for markets.”
The firm has embraced crypto, launching an Ethereum-based tokenized fund as well as Bitcoin and Ether-based exchange traded funds.
Michnick's comments echo a recent BlackRock report he co-authored, which called bitcoin an “increasingly unique diversifier” against “economic, monetary and geopolitical risk factors.”
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To be sure, Bitcoin is volatile, the report notes: According to BlackRock, it has outperformed “all major assets” in seven of the last 10 years. In the remaining three years, it is the “worst performing asset”.
But its value comes from a fundamentally different place than most stocks.
“We think of it primarily as an emerging global monetary alternative,” Michnick said of bitcoin. “It is a rare, global, decentralized, non-sovereign asset. It is a country-specific risk-free asset that has no traditional counterparty risk.
While bitcoin appears to move in lockstep with equities during “sudden changes in US dollar real interest rates or liquidity,” the BlackRock report said, “these episodes are short-lived in nature.”
According to Michnick, institutional investors recognize this.
“It confuses investors when people talk about it as risk-on, because, based on the characteristics I just described, you think it's risk-off,” he said.
However, BlackRock stopped short of an outright recommendation in its report.
“Bitcoin has a different impact on portfolios managed at modest allocations, but at large position sizes its elevated independent volatility begins to have an outlier effect in increasing portfolio risk,” it said.
Although bitcoin has some similarities to gold, according to Michnik, institutional investors are less certain about what is driving the value of ether, the world's second-largest cryptocurrency.
“The investor narrative and clarity, especially on the more institutional side, is a little less clear for many of our institutional clients for Ethereum,” he said.
BlackRock launched exchange-traded funds for Bitcoin and Ethereum earlier this year.
While the firm's bitcoin product has been a smash hit, some have described investor response to ether-backed ETFs as relatively muted.
“Experiment for [BlackRock’s] ETHA … is very strong,” he said, citing inflows of $1 billion in two months. “It's a really good experiment for an ETF.”
Alex Gilbert DL News' is a New York-based DeFi correspondent. You can reach him at [email protected].
Related TopicsBITCOIN ETFETHEREUM ETFBITCOIN
