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In an interview on CNBC on Monday, BlackRock (BLK) CEO Larry Fink had strong words for the crypto market.

"As you know," Fink told CNBC's Jim Cramer, "I was a skeptic [about bitcoin]."

"I was a proud skeptic," Fink added. "And I studied it, learned about it, and I came away saying, 'My opinion five years ago was wrong. Here's my opinion today: I believe in the opportunity today.' I believe bitcoin is legitimate."

For some in the crypto community, these words from the CEO of the world's largest asset manager will be just that: words said by a powerful man in finance. They never needed Fink's, or anyone else's, validation.

For others, these comments are another significant step in bringing bitcoin (BTC-USD) — and cryptocurrencies more broadly — into the same conversation as stocks, bonds, and the other accepted constituents of a balanced portfolio.

Speaking later about bitcoin's role as a hedge against currency debasement and financial instability, Fink added, "I'm a major believer that there is a role for bitcoin in portfolios ... I see it as digital gold."

On BlackRock's earnings call Monday morning, Fink said the firm's bitcoin ETF, the iShares Bitcoin Trust (IBIT), saw $4 billion in net inflows in the second quarter and $18 billion in its first six months. Fink added the fund was "the third-highest [grossing] exchange-traded product in the industry this year."

Plenty of reason, then, to find the asset's legitimacy.

But to view Fink's optimism about bitcoin as a shallow sales pitch for an ETF that carries a higher fee than many of its larger equity and bond ETFs would be to miss the current pressures facing portfolio managers and the potential benefit bitcoin could confer.

As we wrote last week, concentration in the S&P 500 has made references to "the stock market" less meaningful than ever. The S&P 500 is interchangeably referred to as the "benchmark index." Yet its promise of offering a consensus benchmark for investors across the market doesn't feel like it used to.

Strategists raising their price targets on the index have done so with ambivalence. Back on July 2, Lori Calvasina, head of US equity strategy research at RBC Capital Markets, said her team's decision to raise its S&P 500 price target to 5,700 from 5,300 was a "nervous raise."

Since the start of 2023, the S&P 500 has gone up 46%. Great news for many mom-and-pop investors socking most of their investments away into diversified equity index funds. For institutions, the stock market's rally presents a challenge.

A Fidelity study from 2022 found nearly a quarter of the average institution's assets were held in alternatives — things like private equity, private credit, venture capital, and so on. And the firm found almost half the investors it surveyed said their exposure to this asset class would increase in the years ahead.

Meanwhile, the average institution's allocation to public equities stood at 43%. For advisers — or those handling portfolios for individuals — the allocation to stock was 62%.

Institutional investors have pressures far beyond those facing the average saver. (Like, say, ensuring the endowment of a private university has the liquidity to meet operational needs and support future capital projects while also growing through investing.)

These investors also contend with all manner of mandated constraints. Stocks usually go up, but it's not often that "the stock market" — read: the S&P 500 — is a worthy North Star for many on Wall Street.

During market environments like today, however, when AI hype offers a relentless bid for large-cap US equities, the S&P 500 has made dozens of record highs, and cash still yields north of 4%, many institutions end up in unenviable positions of explaining returns that fall short of "the market."

In this context, Fink's boosterism for bitcoin reminds professional investors of Harry Markowitz's famous contention that diversification is the only free lunch in investing.

"It is a legitimate financial instrument that allows you to have uncorrelated, non-correlated type of returns," Fink said.

The simplified version of Markowitz's argument says adding more uncorrelated assets, or assets that don't go up or down at the same time, to a portfolio can increase returns without adding risk.

And here, bitcoin opens the door.

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