BlackRock has released a glowing report on bitcoin, in which the giant fund plays on 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 money supply and stateless asset, bitcoin presents risk and return factors distinct from traditional asset classes.
THE report argue that in the long term, bitcoin will be fundamentally uncorrelated with other assets. While bitcoin often suffers when the stock market drops sharply, the authors note that the price of bitcoin “usually bounces back within three days.”
“Fundamentals eventually trump the short-term reactions of traders who use leverage. As Warren Buffett says, the stock market is a system for transferring money from the impatient to the patient. That saying seems to apply to bitcoin as well.”
Indeed, bitcoin has outperformed every major asset class in seven of the past ten years. Its annualized return has been more than 100% per year over the past decade.
That said, it was also the worst performing asset in the other three of those ten years, with four declines of more than 50%. But “He has shown his ability to recover from these declines to reach new heights”we can read.
Is bitcoin a “risky” or “risk-free” asset? It’s hard to decide. Blackrock says that while bitcoin is volatile, its long-term historical returns have far outpaced those of all major asset classes.
In other words, its “Sharpe ratio” is respectable. That is to say, the ratio [rendement / volatilité]The higher this ratio, the better.
Bitcoin profits from US instability
BlackRock notes that the nature of bitcoin prompts some investors to view it as a safe haven in times of stress, including disruptive geopolitical events.
The reason being that “Bitcoin, the first fixed, decentralized and stateless monetary alternative to be widely adopted worldwide, does not present counterparty risk, does not depend on any centralized system and is not dependent on the fate of any particular country.”
“These properties make it an asset that is largely detached (in fundamental terms) from certain critical macroeconomic risk factors, including banking system crises, sovereign debt crises, currency depreciation, geopolitical disruptions and other country-specific political and economic risks.”
In sum, BlackRock believes that in the long term, the trajectory of bitcoin adoption will likely be determined by the degree of growing and decreasing concern about global monetary instability and geopolitical disagreements. U.S. monetary hegemony will be a significant factor in the equation:
“Growing concerns in the United States and abroad about the state of the U.S. federal government's deficits and debt have increased the appeal of potential alternative reserve assets as a potential hedge against possible future events affecting the U.S. dollar. […] Based on our experience with our clients so far, this largely explains the growing interest in bitcoin from institutions.”
Hence the fact that Donald Trump is in favor of creating a strategic reserve of bitcoin 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.
In this regard, do not miss our article: “Dollar – Trump threatens BRICS”.
A technological breakthrough and an international reserve currency
Another good sheet of the report, the one on the technological description of bitcoin. It is appreciable that large institutions clearly admit that bitcoin is a major technological breakthrough. And therefore, that we will not go back…
We can read that “Technological innovation lies in creating a form of digital, global currency with a fixed monetary supply, decentralized and resistant to censorship”.
With these features, bitcoin has helped solve many of the problems that other forms of currency have faced:
1) The money supply is set 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 friction long inherent in transferring value across political borders.
3) Its decentralized and censorship-resistant nature made it the world's first truly open-access monetary system
The world's largest investment fund believes 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 privileges to no one and for all nations to trade on a level playing field. How else will we ease geopolitical tensions?
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