Bitcoin's (CRYPTO: BTC) evolution over the past 15 years has been nothing short of extraordinary. If you had told someone when Bitcoin first launched in 2009 that the world's largest asset manager would one day declare Bitcoin a portfolio necessity, they likely wouldn't have believed you.

Well, that day has come as BlackRock (with its $10 trillion in assets under management) recently published a report on the cryptocurrency that provides compelling reasons for every investor to consider Bitcoin's value and its role in a changing financial landscape. Here's a closer look at why BlackRock believes Bitcoin could see unprecedented demand in the coming years and why its core design offers a solution to many of the challenges facing today's global economy.

BlackRock's changing the Bitcoin tune

In its nine-page report on Bitcoin, BlackRock laid out insights that caught the attention of many in the finance world, especially those who've been following Bitcoin's journey. Some of the arguments put forth by BlackRock were familiar to longtime Bitcoin advocates, but hearing them from one of the most powerful financial institutions in the world gives them added weight.

The first key point BlackRock makes is that Bitcoin is an enigma -- a unique asset that stands apart from anything else in the market. Unlike traditional assets that fall neatly into categories of "risk-on" or "risk-off," BlackRock asserts that Bitcoin cannot be judged by these conventional measures. Instead, it should be viewed as an entirely different asset class.

BlackRock's reasoning is straightforward and aligns with what Bitcoin proponents have argued for years. The firm highlights Bitcoin's decentralized, non-sovereign nature, along with its lack of counterparty risk, as central to its appeal. In BlackRock's words, Bitcoin is largely detached from several critical macroeconomic risk factors. These include banking crises, sovereign debt issues, currency debasement, and geopolitical disruptions -- events that can heavily impact traditional markets.

Simply put, Bitcoin's structure makes it resistant to many of the systemic risks that plague other assets. This insight from a financial titan like BlackRock lends credibility to the claims Bitcoin investors have made for years. More importantly, it also serves as a powerful endorsement of the cryptocurrency -- one that could reverberate throughout the financial world.

Why Bitcoin belongs in every portfolio

While BlackRock acknowledges that Bitcoin carries risk, the report argues that it offers a different kind of risk that is uncorrelated with traditional assets. This distinction is crucial because traditional assets tend to move in tandem in times of market volatility. Stocks, bonds, and other financial instruments often rise and fall together, offering limited diversification benefits during crises.

Bitcoin, on the other hand, operates under its own set of rules. According to BlackRock, Bitcoin's low correlation to traditional assets means it can help diversify risk in a portfolio. While there have been periods where Bitcoin moved in sync with equities, such instances have been temporary. Over the long term, data shows that Bitcoin's correlation with the S&P 500 has remained low and has even declined in recent years.

A prime example of Bitcoin's unique behavior occurred during the banking crisis in March 2023. As fears mounted that several banks were on the verge of collapse, Bitcoin quietly surged by over 30% in just two weeks. While this may be a small example, it perfectly illustrates the role Bitcoin can play as a hedge against systemic financial risks. BlackRock believes that this kind of resilience will be increasingly valuable to investors over the long run.

Bitcoin's long-term outlook

One of the most striking conclusions in BlackRock's report is that Bitcoin is not just an investment opportunity but a necessity for investors looking to build resilient portfolios. The firm predicts that Bitcoin's core characteristics (decentralization, limited supply, and resistance to traditional market risks) will drive continued demand from both retail and institutional investors.

A key driver of this demand, according to BlackRock, is the growing debt burden faced by governments worldwide, particularly in the U.S. As these debt levels continue to rise, concerns about the debasement of fiat currencies will only increase. In this context, Bitcoin, with its fixed supply of 21 million coins, presents a compelling alternative. Unlike fiat currencies that can be printed at will, Bitcoin's scarcity ensures that its value is preserved over time, especially in an inflationary environment.

While BlackRock's report stops short of making specific price predictions for Bitcoin, its endorsement speaks volumes about the asset's long-term potential. With a finite supply and increasing demand, Bitcoin could be positioned for significant price appreciation in the coming years. For investors, this means that even though Bitcoin is trading just below its all-time high, there is still ample room for growth.

Should you invest $1,000 in Bitcoin right now?

Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $760,130!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 23, 2024

RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

How a Recent Announcement From One of Wall Street's Biggest Names Could be a Complete Game Changer for Bitcoin was originally published by The Motley Fool