While bitcoin exhibits short-term volatility in tandem with stocks and other risk assets, a new BlackRock white paper suggests its underlying drivers are “significantly different” over the long term, making it a “unique diversifier.”

“We believe that bitcoin, due to its nature as a global, decentralized, non-government fixed-supply asset, has risk and return drivers that differ from traditional asset classes and that are essentially uncorrelated on any long-term basis,” it said.

“We maintain this belief even as short-term market trading behavior sometimes deviates (in some cases profoundly) from what Bitcoin’s fundamental characteristics suggest.”

It should be noted that the cryptocurrency was not immune to the significant market selloff last month, posting a one-day drop of 7 percent versus the S&P 500's 3 percent decline on August 5.

This episode, BlackRock noted, coincided with a series of Bitcoin-specific events that had already unfolded in the previous days.

Despite this volatility, the asset manager observes that bitcoin's long-term correlation with stocks and bonds is low and its long-term historical returns are "significantly higher" than all major asset classes.

“While there have been brief periods where Bitcoin has seen its correlation spike – particularly circular episodes of sudden changes in real interest rates or USD liquidity – these episodes have been short-term in nature and have failed to produce a clear long-term statistically significant correlational relationship,” the asset manager said.

BlackRock highlighted that Bitcoin, despite being the worst-performing asset in three of the last 10 years and experiencing four absorptions exceeding 50 percent, has outperformed all major asset classes in seven of those years, achieving an impressive annualized return of over 100 per cent

Looking at its performance through major geopolitical events, BlackRock revealed that the asset plunged 25 percent in the 10 days following the outbreak of COVID-19 on March 11, but recovered to return 21 percent over the following 60 days.

In contrast, over the same time period, the S&P 500 and gold fell 20% and 9%, respectively, and rallied to gains of 2% and 3% over the next 60 days.

More recently, the analysis found that Bitcoin also showed resilience following the Russian invasion of Ukraine on February 24, 2022, initially falling 6% in the 10 days following the event, but rebounding to deliver a 15% return by May.

"In most cases...bitcoin has recovered back to its previous level within days or weeks, and in many cases has risen even further," it said.

However, BlackRock warned that bitcoin is "still a very risky asset" and remains an "emerging technology".

"Bitcoin has also been volatile and subject to a myriad of risks, which include regulatory challenges, uncertainty about the adoption path, and a still immature ecosystem," it said.

"However, the key point is that these risks are unique to Bitcoin and not specifically shared by other traditional investment assets."

BlackRock emphasized that bitcoin serves as a notable case study illustrating the limits of risk and asset risk frameworks, noting that while modest allocations to bitcoin can diversify portfolios, larger positions can increase a portfolio's overall risk due to its increased volatility.

Earlier this year, BlackRock CEO Larry Fink described himself as a "true believer" in cryptocurrency, voicing his support for Bitcoin in an interview with CNBC.

Since the start of the year, the firm's iShares Bitcoin Trust ETF, listed on NYSE Arca following the US SEC's approval of the bitcoin ETF in January, has seen significant inflows. He now boasts over $22 billion in net assets.