That’s The Takeaway from this morning’s Brief, which you can do register to receive in your inbox every morning along with:
In an interview on CNBC on Monday, BlackRock ( BLK ) CEO Larry Fink had strong words for the crypto market.
“As you know,” Fink told CNBC’s Jim Cramer, “I was a skeptic [about bitcoin].”
“I was a proud skeptic,” Fink added. “And I studied it, I learned about it, and I came out saying, ‘My thinking five years ago was wrong. Here is my opinion today: I believe in the possibility today.” I believe bitcoin is legitimate.”
For some in the crypto community, these words from the CEO of the world’s largest asset manager will be just that: words from a financial powerhouse. They never needed Fink’s, or anyone else’s, validation.
For others, these comments are another important step in bringing bitcoin (BTC-USD) – and cryptocurrencies more broadly – into the same conversation as stocks, bonds and other accepted components of a balanced portfolio.
Speaking later about bitcoin’s role as a hedge against currency devaluation and financial volatility, Fink added, “I’m a big believer that there is a role for bitcoin in the wallet… I see it as digital gold.”
On BlackRock’s earnings call Monday morning, Fink said the firm’s bitcoin ETF, the iShares Bitcoin Trust (IBIT), saw $4 billion in net inflows in the second quarter and $18 billion in the first six months. Fink added that the fund was “the third highest [grossing] exchange traded product in the industry this year.”
So there are many reasons to find the legitimacy of wealth.
But to view Fink’s optimism about bitcoin as a shallow sales pitch for an ETF that carries a higher fee than many of his larger equity and bond ETFs would be to miss the current pressures with it what portfolio managers face and the potential benefits that bitcoin can bring.
As we wrote last week, the focus on the S&P 500 has made references to “the stock market” less meaningful than ever. The S&P 500 is referred to interchangeably as the “benchmark index.” However, its promise to provide a consensus standard for investors across the market is not what it used to be.
Strategists raising their price targets on the index have done so with ambivalence. On July 2, Lori Calvasina, head of U.S. equity strategy research at RBC Capital Markets, said her team’s decision to raise the S&P 500’s price target to 5,700 from 5,300 was a “nervous increase.”
Since the start of 2023, the S&P 500 is up 46%. Great news for many mom-and-pop investors who shift most of their investments to diversified equity index funds. For institutions, the growth of the stock market represents a challenge.
A Fidelity study from 2022 found that nearly a quarter of the average institution’s assets were held in alternatives — things like private equity, private credit, venture capital, etc. And the firm found that almost half of the investors it surveyed said their exposure to this asset class would increase in the coming years.
Meanwhile, the institution’s average allocation to public capital was 43%. For advisers – or those who handle portfolios for individuals – the stock allocation was 62%.
Institutional investors have pressures far beyond those facing the average saver. (Like, say, ensuring a private university has the liquidity to meet operational needs and support future capital projects, while also growing through investment.)
These investors also face all kinds of mandated restrictions. Stocks usually go up, but it’s not often that the “stock market” — read: the S&P 500 — is a worthy North Star for many on Wall Street.
However, during market environments like today’s, when the AI hype is offering a relentless bid for US large-cap stocks, the S&P 500 has hit dozens of record highs and cash is still running north of 4%, much institutions end up in unenviable positions of explanation. returns that fall short of “market.”
In this context, Fink’s push for bitcoin reminds professional investors of Harry Markowitz’s famous argument that diversification is the only free lunch in investing.
“It’s a legitimate financial instrument that allows you to have a kind of uncorrelated, uncorrelated return,” Fink said.
The simplified version of Markowitz’s argument says that adding more uncorrelated assets, or assets that don’t go up or down at the same time, to a portfolio can increase returns without adding risk.
And here, bitcoin opens the door.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance