Summary Bitcoin has exhibited strong performance in the past decade, but its long-term uptrend has been accompanied by immense volatility and large drawdowns along the way. Bitcoin’s volatility remains elevated at 3.9 and 4.6 times that of gold and global equities, respectively. But bitcoin’s volatility has consistently declined alongside the industry’s maturation in recent years. While bitcoin’s volatility is high in absolute terms, it’s in the same realm as many familiar investments, like certain mega cap tech stocks such as Nvidia, Tesla, and Meta. Investors considering a bitcoin allocation should take a measured approach that not only considers the potential upside that could come from investing in bitcoin but also its volatility and risks. Small allocations, regular rebalancing, and dollar cost averaging may help smooth out the ride. By Jay Jacobs Decoding Bitcoin's Volatility Bitcoin has become a globally recognized asset since its emergence 15 years ago. Regarded as the first global digital payment method to gain broad global adoption, Bitcoin is a global monetary instrument that can be transferred directly between two people anywhere in the world, in near real-time. From 2014 to 2023, bitcoin was the best performing asset and held the top annual spot seven of those 10 years. But bitcoin was also the worst-performing asset in the other three years, demonstrating both the highs and lows of this asset. Over that time period, bitcoin still averaged a 50% annualized return through these ups and downs, outperforming every major asset class by a wide margin. Figure 1: Bitcoin has had periods of high performance and periods of significant drawdowns Caption: Table: Bitcoin performance compared with other select major asset classes Source: Bloomberg and BIackRock calculations, as of Apr. 30, 2024. Asset classes shown include major liquid asset classes available to US. investors. Bitcoin returns calculated using Bloomberg Bitcoin Spot Price. SPX is represented by the S&P 500 Index (TR). EM is represented by the Dow Jones Emerging Markets Index (TR). AGG is represented by S&P U.S. Aggregate Bond Index (TR). HY is represented by S&P U.S. High Yield Corporate Bond Index (TR). Gold returns calculated using the spot exchange rate of gold against the U.S. dollar index CMT is represented by Dow Jones Commodity Index (TR). Past performance does not guarantee future results. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index Certain sectors and markets perform exceptionally well based on current market conditions and iShares and BIackRock Funds can benefit from that performance. Achieving such exceptional returns involves the risk of volatility and investors should not expect that such results will be repeated. Index performance does not represent actual Fund performance. For actual fund performance, please visit iShares® ETFs by BlackRock - Investing Made Easy | iShares - BlackRock or Investment Management & Financial Services | BlackRock . Bitcoin's volatility - meaning its tendency to have big swings both up and down - as well as its frequent and prolonged drawdowns 1 , present risks and challenges to many investors. Since 2014, bitcoin has experienced four drawdowns in excess of 50%. While one of these was followed by a quick, six-month recovery, the three largest drawdowns averaged an approximately 80% decline. Patient investors were ultimately rewarded in each case, but in three of the four major corrections, bitcoin's price took nearly three years to recover. Figure 2: Bitcoin's history of big drawdowns and rebounds Caption: Table featuring Bitcoin's historical drawdowns, including start dates, days until market bottom, days until market recovery, drawdown percentages, and 4-year forward returns, where the latter calculates the cumulative total return assuming Bitcoin was held continuously for four years starting from the initiation of each drawdown period. Source: Bloomberg Bitcoin Spot Price. Drawdowns calculated from daily returns. 4Yr Forward Return calculates the cumulative total return if bitcoin was held four years beginning at the start of each drawdown. Dashes in the 4Yr Forward Return column indicate that four years have not yet passed since the beginning of that drawdown. Past performance is not indicative of future results. With a history of such extreme outcomes, relatively small allocations to bitcoin and regular rebalancing may help investors stay the course throughout market stress. And while past performance is no guarantee of future returns, it is important to recognize that bitcoin may continue to exhibit volatility in the future. Bitcoin's Volatility Then & Now Bitcoin only came online 15 years ago. Such nascency breeds price volatility as market participants speculate about the role bitcoin may play in the global economy and in portfolios. This is similar to how a newly formed company is typically perceived as a riskier investment than a firmly established one. But as time has passed and bitcoin has continued to solidify its global presence, its volatility has notably declined. While bitcoin is still much more volatile than other major asset classes, like equities and bonds, Figure 3 illustrates the steady decline in the volatility of the world's largest digital asset. 2 Figure 3: Bitcoin's volatility is still high, but coming down Rolling 1-year volatility Chart description: Line chart depicting the rolling 1-year volatility of Bitcoin alongside gold, global equities, and U.S. bonds, illustrating Bitcoin's historically high but decreasing volatility relative to other major asset classes from December 2017 to April 2024. (Source: Bloomberg. Bitcoin represented by Bloomberg Bitcoin Spot Price, Gold represented by Bloomberg Gold Spot Price, ACWI IMI represented by the MSCI ACWI IMI Net Total Return USD Index, US Agg represented by Bloomberg US Agg Total Return Value Unhedged USD Index. Volatility Annualized using daily returns. For illustrative purposes only. Not meant to guarantee any future result or experience.) And while bitcoin is often associated with its immense volatility, it's actually not an outlier when compared to certain mega cap tech stocks, like Nvidia, Tesla, and Meta, for example. Figure 4: Bitcoin's volatility vs. certain mega cap tech stocks Rolling 1-year volatility Chart description: Line chart showing the rolling 1-year volatility of Bitcoin juxtaposed with select mega cap companies: NVDA (NVIDIA Corporation), META (Meta Platforms Inc.), and TSLA (Tesla Inc.), showing a convergence in volatility levels over time from January 2020 to March 2024. (Source: Bloomberg. Bitcoin represented by Bloomberg Bitcoin Spot Price volatility Annualized using daily returns. For illustrative purposes only. Not meant to guarantee any future result or experience. Any companies mentioned do not necessarily represent current or future holdings of any BlackRock products. For actual Fund holdings, please visit www.ishares.com.) Bitcoin's Volatility And Overall Portfolio Risk Arguably more important than bitcoin's standalone volatility is the impact it will have on a portfolio's overall volatility. Because bitcoin has been relatively uncorrelated to traditional assets like stocks and bonds over long time horizons, the way that it has behaved in a portfolio is unique. In fact, a bitcoin allocation may actually have a smaller impact on portfolio volatility than similar-sized positions in certain individual stocks. With large allocations, bitcoin's standalone volatility can have an outsized impact on portfolio risk. But at more modest sizes, bitcoin's typically low correlation has tended to provide modest diversifying effects while tapping into a novel source of return. Still, investors must be aware of bitcoin's immense volatility and should be prepared to weather long and potentially painful drawdowns. That's why we believe anyone considering investing in bitcoin should understand their time horizon, risk tolerance, and have clear investment objectives. Investors can also navigate near-term volatility by using common portfolio management methods such as dollar cost averaging, regular rebalancing, and maintaining a long-term investment horizon. © 2024 BlackRock, Inc. All rights reserved. 1 Source: Bloomberg as of April 29, 2024. Bitcoin volatility is approximately 47% vs. around 12% for gold and 10.2% for global equities. Volatility calculated as the rolling standard deviation of annualized daily returns. 2 Based on bitcoin's market cap of $1.2T, which accounts for greater than 50% of the total market cap of all cryptoassets excluding stablecoins (Source: The Tie, as of Apr. 30, 2024. This information must be accompanied or preceded by a current iShares Bitcoin Trust prospectus, which may be obtained by clicking here . Please read the prospectus carefully before investing. Investing involves a high degree of risk, including possible loss of principal. An investment in the Trust is not suitable for all investors, may be deemed speculative and is not intended as a complete investment program. An investment in Shares should be considered only by persons who can bear the risk of total loss associated with an investment in the Trust. The iShares Bitcoin Trust is not an investment company registered under the Investment Company Act of 1940, and therefore is not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940. The Trust is not a commodity pool for purposes of the Commodity Exchange Act. Before making an investment decision, you should carefully consider the risk factors and other information included in the prospectus. Investing in digital assets involves significant risks due to their extreme price volatility and the potential for loss, theft, or compromise of private keys. The value of the shares is closely tied to acceptance, industry developments, and governance changes, making them susceptible to market sentiment. Digital assets represent a new and rapidly evolving industry, and the value of the Shares depends on their acceptance. Changes in the governance of a digital asset network may not receive sufficient support from users and miners, which may negatively affect that digital asset network's ability to grow and respond to challenges Investing in the Trust comes with risks that could impact the Trust's share value, including large-scale sales by major investors, security threats like breaches and hacking, negative sentiment among speculators, and competition from central bank digital currencies and financial initiatives using blockchain technology. A disruption of the internet or a digital asset network would affect the ability to transfer digital assets and, consequently, would impact their value. There can be no assurance that security procedures designed to protect the Trust's assets will actually work as designed or prove to be successful in safeguarding the Trust's assets against all possible sources of theft, loss or damage. This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision. This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial professional before making an investment decision. Shares of the Trust are not deposits or other obligations of or guaranteed by BlackRock, Inc., and its affiliates, and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. The sponsor of the Trust is iShares Delaware Trust Sponsor LLC (the "Sponsor"). BlackRock Investments, LLC ("BRIL"), assists in the promotion of the Trust. The Sponsor and BRIL are affiliates of BlackRock, Inc. © 2024 BlackRock, Inc or its affiliates. All Rights Reserved. BLACKROCK, iSHARES, iBONDS, LIFEPATH, ALADDIN and the iShares Core Graphic are trademarks of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners. iCRMH0724U/S-3593049 This post originally appeared on the iShares Market Insights.
