BlackRock's 2025 Investment Outlook: BTC becomes a new diversification investment vehicles

Asset management giant BlackRock has released its Global Outlook 2025 report, which mentions the potential of BTC as a new diversified investment vehicle, which could be a potential tactical hedging tool for gold due to its low correlation with equities. Looking ahead to 2025, BlackRock remains bullish on the U.S. stock market and believes AI will remain the main axis in 2025.

Limitations of traditional decentralized investment vehicles

The unstable correlation between stocks and bond returns has defined a new economic system, where government bonds no longer serve as a reliable buffer against stock dumping. BlackRock believes that traditional diversification investment vehicles like gold and emerging diversification investment vehicles like Bitcoin have the potential to become new sources of risk and return. However, this is not meant to replace long-term bonds for diversification purposes, but rather to seek new and unique sources of risk and return.

BTC has a low correlation with stocks

The potential of BTC as a new diversified investment vehicle comes from its unique value-driving factors: the potential appreciation when the scheduled supply meets the rising demand, and the demand is based on investors' belief in BTC being widely adopted as a payment technology. For example, after the US election, BTC reached a historic high, reflecting increased opportunities for BTC to be widely adopted due to investors' increased support for Trump's past support for BTC and other cryptocurrencies. These unique driving factors should make it less correlated with stocks and other risk assets in the long term.

The chart above shows that the correlation between BTC and global stock markets (red line) remains limited, even though it briefly surged to 50% in 2022, but has now fallen back to 15%. Given BTC's unique value drivers, BlackRock believes that BTC has no intrinsic reason to be long-term correlated with major risk assets.

BTC has become a potential tactical Hedging tool

The risk and return characteristics of BTC mentioned in the report may change with its widespread adoption, when it may be more suitable as a tactical Hedging tool for specific risks, such as gold.

Gold has soared as investors seek to hedge against high inflation, with some Central Banks also seeking alternatives to primary reserve currencies. BlackRock believes that monitoring the performance of these alternatives relative to traditional asset classes and using them flexibly is key.

(The rise of digital gold, can BTC replace gold as a national reserve, or a tool for de-dollarization?)

BlackRock's investment recommendations for 2025

In the second half of 2024, stocks hit a historic high led by large-cap tech stocks. This was followed by a hard landing scenario in Depth's interest rate cut (editor's note: referring to the major correction in August), which indicates that a typical business cycle perspective may not be applicable to the current environment. The current investment environment is undergoing significant transformation, and the traditional 60/40 stock and bond portfolio may no longer apply.

Looking ahead to 2025, BlackRock is confident in the strength and performance of American companies, with US stocks continuing to outperform their global peers, which may continue. The US benefits from tremendous forces driving corporate earnings and is supported by favorable rise prospects, potential tax cuts, and relaxed regulations.

And AI will still be the focus of 2025, and the tremendous power of AI will benefit the US stock market even more. As for other country's stock markets, BlackRock is optimistic about Japan and China, and holds a bearish attitude towards Europe.

BlackRock also pointed out that the potential increase in the US budget deficit has added ongoing fiscal pressure, so it prefers government bonds or corporate bonds from other developed markets because they provide quality income and relatively healthy balance sheets.

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