BlackRock Sees Bitcoin As An International Reserve Currency.

BlackRock released a laudatory report on bitcoin. The giant fund entertains the idea that it could become the international reserve currency.

Bitcoin Risk ‘on’ or ‘off’?

BlackRock believes that due to its nature as a global, decentralized, fixed-supply, and stateless asset, bitcoin presents risk and return factors distinct from traditional asset classes.

The report suggests that in the long-term, bitcoin will be fundamentally uncorrelated with other assets. While bitcoin often suffers when the stock market abruptly falls, the authors point out that bitcoin’s price “generally rebounds within three days.”

“Fundamentals eventually outweigh the short-term reactions of traders using leverage. As Warren Buffett says, the stock market is a device for transferring money from the impatient to the patient. This adage also seems to apply to bitcoin.”

Indeed, bitcoin has outperformed all major asset classes in seven of the last ten years. Its annualized return was over 100% per year over the last decade.

That said, it was also the worst-performing asset in three of those ten years, with four declines of over 50%. But “it has shown its ability to recover from these drops to reach new heights,” it reads.

Is bitcoin a “risky” or “risk-free” asset? It’s hard to decide on the question. For BlackRock, although bitcoin is volatile, its long-term historical returns have been significantly higher than those of all major asset classes.

In other words, its “Sharpe ratio” is respectable. That is, the ratio [return / volatility]. The higher this ratio, the better.

BlackRock just put out a nine-page white paper that makes case for bitcoin ETF as a "unique diversifier" that can hedge against fiscal, monetary and geopolitical risks, also incl section called "Bitcoin's path to $1 trillion market cap" 👀 Read whole thing here:… pic.twitter.com/mRzDpw4aSP

— Eric Balchunas (@EricBalchunas) September 18, 2024

Bitcoin Benefits from U.S. Instability

BlackRock notes that bitcoin’s nature prompts some investors to view it as a safe haven during periods of stress, particularly during disruptive geopolitical events.

The reason being that “bitcoin, the first fixed, decentralized, and stateless monetary alternative to be widely adopted globally, presents no counterparty risk, does not depend on any centralized system, and is not contingent on the fate of any particular country.”

“These properties make it an asset largely detached (in fundamental terms) from certain critical macroeconomic risk factors, including banking system crises, sovereign debt crises, currency depreciation, geopolitical disruptions, and other political and economic risks specific to each country.”

In short, BlackRock believes that in the long-term, the trajectory of bitcoin’s adoption will likely be determined by the degree of rising and falling concern regarding global monetary instability and geopolitical disagreements. U.S. monetary hegemony will be an important factor in the equation:

“Growing concerns in the U.S. and abroad about the state of the U.S. federal government’s deficits and debt have strengthened the appeal of potential alternative reserve assets as a potential hedge against future events affecting the U.S. dollar. […] Based on the experience we have gained so far with our clients, this largely explains the growing interest of institutions in bitcoin.”

Bitcoin likes it when USA is in trouble. Just saying. pic.twitter.com/db1wJUbiil

— Nicolas Teterel (@NTeterel) September 18, 2024

Hence the fact that Donald Trump is in favor of creating a strategic bitcoin reserve before the rest of the world uses it in place of the dollar. Bitcoin is indeed a direct competitor for the title of international reserve currency.

On this note, don’t miss our article: “Dollar – Trump Threatens the BRICS.”

A Technological Breakthrough and an International Reserve Currency

Another highlight of the report is the technological description of bitcoin. It is appreciable that large institutions openly admit that bitcoin is a major technological breakthrough. And as such, there’s no going back…

We can read that “the technological innovation lies in the creation of a form of digital, global, fixed-supply, decentralized, and censorship-resistant currency.”

Thanks to these characteristics, bitcoin has solved many issues that other forms of money have encountered:

1) The money supply is fixed at 21 million units.
2) Its global and digital nature means it can be transported anywhere in the world in near real-time at near-zero cost. Bitcoin transcends the long-standing frictions inherent in transferring value across political borders.
3) Its decentralized and censorship-resistant nature has made it the world’s first truly accessible monetary system.

The world’s largest investment fund estimates that bitcoin is “an emerging technology that is only at the beginning of its adoption journey and could become an international payment currency as well as a store of value.”

Yes, bitcoin can become the reserve currency. It is time for the international currency to offer no privileges to anyone, allowing all nations to trade on equal terms. How else will we ease geopolitical tensions?