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According to a BlackRock presentation, Bitcoin is increasingly seen by clients as a hedge against rising U.S. debt concerns. With limited supply and global transferability, Bitcoin offers an alternative to traditional reserve assets vulnerable to macroeconomic disruptions.
BlackRock Clients Favor Bitcoin as Debt Hedge
According to a PowerPoint presentation that BlackRock released on Wednesday, the majority of its clients saw Bitcoin as a hedge against the possibility of a debt crisis in the United States. The presentation said that Bitcoin possesses "little fundamental exposure" to the macro variables that impact other types of investments.
The worldwide nature, ease of transfer across borders, and limited quantity of Bitcoin are some of its distinguishing qualities, according to BlackRock analysts, as reported by Decrypt.
Institutional Bitcoin Interest Broadening, Says BlackRock
“The growing concerns in the U.S. and abroad over the state of U.S. federal deficits and debt has increased the appeal of potential alternative reserve assets as a potential hedge against possible future events affecting the U.S. dollar,” noted BlackRock's analysts.
"In our experience with clients to date, this explains a substantial portion of the recent broadening institutional interest in Bitcoin," they chimed in.
As per US Debt Clock, the nation's declared yearly budget deficit is $2 trillion, and the total debt is $35 trillion. Republican Senator Cynthia Lummis and former President Donald Trump have both advocated for a strategic Bitcoin reserve of one million BTC to aid in the repayment of the national debt.
Bitcoin Unaffected by Banking or Sovereign Debt Crises
Unlike "banking system crises, sovereign debt crises, currency debasement," and "geopolitical disruption," Bitcoin, according to the report's writers, is a "non-sovereign monetary alternative." Concern about these crises events will lead to a longer-term increase in Bitcoin use, in their view.
Bitcoin has been promoted for a long time as a "uncorrelated" safe-haven asset, and this analysis confirms that story. Bitcoin advocates have long maintained that investors will rush to rare assets like Bitcoin when circumstances get tough, and the US dollar falls in value. However, Bitcoin's actions in the past several years have been rather different.
Since at least 2020, when the market crashed due to a pandemic in March of that year, Bitcoin's price has followed Wall Street's, especially tech stocks’, every move. As for "geopolitical disruption," Bitcoin lost 6% in the first 10 days after Russia invaded Ukraine in 2022, but it recovered and gained 15% by the 60th day.
Bitcoin's "high saleability" during panic situations compared to less liquid assets like real estate, as well as its apparent immaturity as an asset, are the reasons given by BlackRock for these apparent contradictions.
Legislative Shifts Classify Bitcoin as Risky Investment
Because of legislative shifts and Bitcoin's position as a developing technology, BlackRock continues to classify the cryptocurrency as a "risky" investment. The asset manager, however, claims that these risks are unique to this investment class.
According to BlackRock analysts, "simple ‘risk-on’ versus ‘risk-off’ frameworks lack the nuance to be broadly useful."
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