When BlackRock published a new analysis on August 17, bitcoin had fallen roughly 50% from its October 2025 record high. Just four days later, bitcoin was trading around $77,000 – a massive 20% jump since BlackRock released the report.
Now, that rebound doesn’t erase the earlier decline. And it certainly doesn’t prove that another decline is impossible.
However, the rapid change helps illustrate why price alone isn’t the only way to evaluate a long-term investment thesis.
A large drawdown (especially a lasting one) raises a more useful question:
Did something fundamental change about bitcoin? Or did its price simply change?
BlackRock recently tried to answer exactly those questions, and we can learn a lot from their analysis.
BlackRock revisits the case for bitcoin
BlackRock’s August report has a rather appropriate title: Re-Underwriting Bitcoin: Still a Portfolio Diversifier.
(“Re-underwriting” is investment-industry language for going back and examining whether the assumptions behind an asset or an investment still hold true.)
And seriously, after 50% price decline seems like a pretty reasonable time to do that!
Overall, BlackRock concluded that the selloff was driven largely by what it calls “crypto-native deleveraging and shifting investor flows.” Not by a fundamental change in bitcoin’s long-term investment case.
“Deleveraging” sounds more mysterious than it is. In practice, it means speculators reducing borrowed or leveraged positions. Sometimes voluntarily, because maybe they realize they’ve made a bad bet. And sometimes because falling prices trigger forced liquidations, the dreaded margin call. That process can amplify price volatility as positions are closed – and, in fact, it did so earlier this week when over $1 billion in crypto short positions were “deleveraged” in an hour.
But that’s just price action. We should separate BlackRock’s interpretation from fact.
BlackRock is saying that, based on its analysis, the reasons for the decline did not disprove the characteristics that originally supported its longer-term thesis for bitcoin as a part of a diversified portfolio.
BlackRock is not making a price prediction here, by the way.
Here are the characteristics that BlackRock examined…
Is bitcoin really a diversifying asset?
One is bitcoin’s relationship with other investments.
Diversification is often discussed as though simply owning several different things solves the problem. (It doesn’t.) What matters is how those assets behave relative to one another – particularly when markets are under stress.
Interestingly, BlackRock describes bitcoin as having a “dual personality.” Over longer periods, its returns have shown relatively low correlation with traditional risk assets. And during some episodes of market strain and deleveraging, bitcoin has moved much more like other risky assets.
That distinction matters.
Saying “bitcoin is uncorrelated with stocks” would be too broad. Correlations do change over time, and they can rise during the very periods when we most want diversification to help.
This saying has been around for a long time, but I first heard Warren Buffett say it:
“In a crisis, all correlations go to one.”
The saying reflects the observation that, during periods of extreme market stress, assets that are typically uncorrelated tend to move in the same direction – specifically, downward. This happens when investors panic, sell everything across the board and seek liquidity. It erodes the positive benefits of diversification. By the way, correlation is measured on a scale from -1 (perfectly opposite movements) to 1 (perfect lockstep movements) in price.
A perfect hedge against risky assets would have a -1 correlation to them.
BlackRock’s position is narrower: It believes those periods of higher correlation have historically been episodic rather than permanent. In other words, temporary.
Its updated 10-year analysis also found that, historically, adding a hypothetical 1%-2% bitcoin allocation to a traditional 60/40 portfolio would have significantly improved risk-adjusted returns over the period studied.
That finding needs an important qualifier.
It is a historical analysis, not evidence that the same allocation will improve future returns. Nor is 1% or 2% a recommendation. There is no such thing as a universally appropriate allocation for any asset. Your individual objectives, time horizon, liquidity needs and ability to tolerate volatility all affect whether crypto or other volatile assets make sense within your own financial plan.
You might have noticed that I mentioned volatility twice?
Volatility hasn’t disappeared
There’s another part of BlackRock’s argument worth emphasizing: Acknowledging bitcoin’s longer-term potential is not the same as pretending its volatility has gone away.
Quite the opposite.
A 50% drawdown is a meaningful risk, regardless of what happens next. And bitcoin’s rebound since BlackRock published its report doesn’t change that fact.
The more interesting question is whether the structure of the crypto market itself has changed over time.
BlackRock argues that bitcoin’s volatility has generally trended lower as the market has matured. In this case, “matured” in the sense that bitcoin is supported by a larger financial derivatives market, and the growth of exchange-traded bitcoin products.
Lower volatility, however, is not the same as low volatility!
Bitcoin can still move much more dramatically than most traditional assets. Anyone evaluating crypto for long-term holdings has to account for the possibility of substantial declines as well as gains. Remember, in investing, all reward comes with risk.
While it’s definitely nice to hear a massive investing house like BlackRock echo some of the very same points I’ve been making over the last few months, it would be more meaningful if we weren’t the only ones pointing out the opportunity in today’s crypto market…
VanEck weighs in on the bitcoin market cycle
BlackRock isn’t the only large investment manager that took another look at bitcoin recently.
Asset management firm VanEck published its own analysis one day later.
VanEck’s argument is somewhat different from BlackRock’s, so we shouldn’t think of them as interchangeable endorsements.
BlackRock primarily examined bitcoin’s longer-term role and portfolio role. VanEck focused more closely on the current bitcoin market cycle and whether the decline was showing signs of maturing.
Using market data through August 11 and 12, VanEck found that eight of the 12 indicators in its “capitulation” dashboard were signaling unusually stressed conditions. It also noted that bitcoin’s 30-day realized volatility had fallen to 27.2% on an annualized basis, compared with a long-run average VanEck puts at roughly 80%.
Based on those and other indicators, VanEck wrote that bitcoin appeared to be “approaching the end of the correction phase” and that it might be nearing or entering what the firm calls an accumulation phase.
That sounds encouraging!
But VanEck itself supplies an excellent reason not to turn that observation into a prediction.
Its analysis found that historically similar clusters of “capitulation” signals did not produce better-than-baseline bitcoin returns over the following three to six months. Its more favorable one-year result came from a relatively small number of overlapping historical episodes.
In VanEck’s own words, the shorter-term historical record gave it “no edge.”
That caveat may be more useful than any forecast.
Yes, bitcoin has risen sharply from the price levels VanEck analyzed. But that doesn’t prove VanEck identified the bottom. Prices can rebound and reverse again, and historical patterns do not dictate what happens next.
Today’s bitcoin market doesn’t look like earlier crypto winters
VanEck does make another argument worth considering.
Previous major bitcoin downturns took place in markets with much less institutional participation and, in several cases, coincided with catastrophic failures inside the crypto industry.
VanEck points to examples including Mt. Gox, Celsius, Three Arrows Capital and even the dreaded FTX.
The current cycle has different market infrastructure. Spot bitcoin exchange-traded products now exist in the U.S., institutional participation is larger and the downturn has not, so far, included an industry failure on the scale of FTX.
VanEck therefore expects this cycle’s eventual peak-to-trough decline to be shallower than bitcoin’s largest historical bear markets.
Again, expects is the important word. VanEck openly identifies that as an assumption. Different market structure might affect how bitcoin behaves, but it cannot guarantee a particular price floor or recovery.
That doesn’t make their research wrong. These firms also have considerable expertise and data at their disposal.
But it does mean their analyses should be treated as informed institutional viewpoints—not as independent proof that bitcoin will perform the way they expect.
Bitcoin as a “global monetary alternative”
BlackRock’s report goes beyond diversification.
It also describes bitcoin as an emerging “global monetary alternative” that could potentially provide a hedge against what BlackRock calls fiat debasement amid rising government debt and persistent fiscal deficits.
The reasoning begins with a structural difference between bitcoin and government-issued currencies. Bitcoin’s protocol limits its maximum supply to 21 million coins. No central bank can independently decide to create another trillion bitcoin because economic conditions have changed.
Dollars, euros, yen and all other government currencies work differently. Central banks control their monetary supplies and can expand them, usually at will, usually to infinity.
That distinction is part of bitcoin’s appeal to some investors, particularly those concerned about government debt, inflation or the long-term purchasing power of fiat currencies.
But the distinction does not prove that bitcoin will successfully hedge against inflation or currency debasement.
A fixed supply is one characteristic of bitcoin. Its market price is still determined by buyers and sellers, and that price can fall sharply regardless of what inflation, government debt or central banks are doing.
So BlackRock’s “global monetary alternative” description is best understood as an investment thesis to evaluate, rather than an established economic relationship.
So what did the stress test tell us about crypto?
A few days of rising bitcoin prices shouldn’t decide the question any more than a few months of falling prices should.
What this episode offers instead is an opportunity to separate price movement from investment thesis.
BlackRock’s analysis suggests that it still sees several characteristics that originally attracted institutional interest in bitcoin: historically low longer-term correlations with traditional assets, fixed supply, a growing institutional market structure and the possibility of serving as a non-sovereign monetary asset.
VanEck, examining the downturn from another direction, sees evidence that the structure and behavior of the current bitcoin market differs from previous severe bear markets.
Neither firm can tell us what bitcoin will be worth next month, next year or ten years from now.
And neither report eliminates bitcoin’s substantial market risk.
For someone evaluating bitcoin as a long-term asset, the more useful questions may therefore be less about whether today’s price is “high” or “low” and more about the role the asset would be expected to play.
How does it behave alongside other holdings? How much volatility can you tolerate? What is your time horizon? How important is liquidity? What risks are you trying to diversify – and what new risks would crypto introduce?
Those questions don’t come with one universal answer.
That is precisely why a 50% drawdown – and even a subsequent 20% rebound – can be useful information without being an investment instruction.
Diversifying your retirement with bitcoin is a separate decision
There is also an important distinction between deciding whether to own bitcoin and deciding how to hold it.
For eligible investors who have independently decided that supported digital assets fit their objectives and risk tolerance, a Digital IRA is one way to hold cryptocurrency within a retirement account.
IRAs can offer tax advantages, but those advantages vary by account type and individual circumstances. Traditional and Roth IRAs, for example, receive different tax treatment, and holding cryptocurrency in an IRA does not make every gain universally “tax-free.”
If you’d like to learn more about how a Digital IRA works, download our free Crypto IRA Guide. Or, if you’ve done your due diligence and are ready to get started, you can open your Digital IRA with BitIRA right now (anytime, day or night) in less than 10 minutes.
