BlackRock's Cohen: Bitcoin's Positive Skewness Favors Upside

BlackRock's Samara Cohen, during an appearance on the Empire podcast, highlighted an intriguing aspect of Bitcoin's market behavior. She noted that Bitcoin continues to exhibit 'positive skewness to its volatility.' This characteristic means that while Bitcoin's price can experience significant fluctuations, the potential for large upward movements outweighs the risk of substantial downward drops. Cohen emphasized that this is a critical phase for Bitcoin, suggesting that investors should pay close attention to how this dynamic plays out in the coming period.

Cohen's observation underscores the unique nature of Bitcoin's volatility. Positive skewness implies that the distribution of Bitcoin's returns is not symmetrical; instead, it is skewed towards the right, indicating a higher probability of extreme positive returns compared to extreme negative returns. This feature can be particularly appealing to investors who are willing to tolerate higher risk in exchange for the potential of significant gains.

Cohen added that, if anything, bitcoin’s just increased its correlation with equities. And yet, BlackRock’s bitcoin ETP IBIT hasn’t seen the level of outflows one might expect. For Cohen, this shows that the price action was focused on retail and speculative positions held by institutions, since IBIT can’t be levered in the same way bitcoin can be. She added: “ Bitcoin hasn’t had the volatility in the downtrade. It continues to have this kind of positive skewness to its volatility.”

The implications of Cohen's remarks are multifaceted. For one, it suggests that Bitcoin's price movements are not merely random but follow a pattern that favors upward trends. This could be encouraging for long-term investors who believe in the cryptocurrency's potential to appreciate over time. Additionally, it highlights the importance of risk management strategies for those involved in Bitcoin trading, as the cryptocurrency's volatility can lead to both substantial profits and losses.

Cohen's comments also come at a time when the broader financial markets are experiencing heightened volatility due to various economic and geopolitical factors. In this context, Bitcoin's positive skewness to its volatility could make it an attractive asset for investors seeking to diversify their portfolios and hedge against market downturns. However, it is essential to note that investing in Bitcoin carries inherent risks, and investors should conduct thorough research and consider their risk tolerance before making any investment decisions.

Cohen also noted that it’s no secret at this point that bitcoin’s not really acting the way some folks think it should — that is, being a safe haven like gold during market downturns. “This is an important moment to play out in terms of how Bitcoin’s price performance does show up. I mean, this environment of market volatility is really induced by cross-border tension, and supply chain complexity like this should be Bitcoin’s environment,” Cohen noted.

Overall, Cohen's insights provide a nuanced perspective on Bitcoin's market behavior and its potential as an investment asset. As the cryptocurrency continues to evolve and gain mainstream acceptance, understanding its unique characteristics and volatility patterns will be crucial for investors navigating this dynamic market. Cohen also mentioned that BlackRock is quite bullish on tokenization and how it can improve capital markets. “We  are very much focused on the path to more tokenization in markets. We are very focused on the utility of bridges to investors,” she told Yanowitz. My takeaway? BlackRock can’t stop, won’t stop its crypto journey. This is just the beginning.