Bitcoin Is Trading Like A Risk Asset, Not Inflation Hedge: BOA

According to the Bank of America, Bitcoin is trading like a risk asset more than it does as an inflation hedge while maintaining a strong correlation with stocks than with gold. In our today’s Bitcoin news, we are taking a closer look at the BOA report.

While bitcoiners often advertise crypto as an anti-inflationary digital gold, Bank of America says that Bitcoin is trading like a risk asset and not as an inflation hedge. The company report shows that the crypto asset moves far more similarly to risk assets like equities and even reached a high correlation with the S&P 500 by the end of January. According to the research note dubbed “Global Cryptocurrencies and Digital Assets,” BTC was trading as a risk asset since the start of July a year ago. This was the same time when the BTC price showed signs of meaningful recovery after a 50% price crash in May 2021. the risk assets are typified by the high volatility and the real estate, equities, and currencies all fall in the same category. The report reads:

“Correlations on Jan 31 between bitcoin and the S&P 500 (SPX) and between bitcoin and the Nasdaq 100 (QQQ) reached all-time highs and the 99.73 percentile respectively.”

In the meantime, the asset maintained almost zero correlation with gold but Bitcoin is often compared with gold as an inflation hedge asset. Unlike some other coins such as Ethereum, Bitcoin has a fixed supply issuance schedule and the crypto will be mined more slowly across time until it reaches a cap of 21 million coins. This spurred investors to use it as a hedge against rampant currency devaluation often in preference over gold. The BTC-to-Gold correlation was stronger in the pandemic after the promises of intensive stimulus from governments around the world. BoFA however believes that BTC will neither be adopted as an inflation hedge in other countries nor lose the status as a risk asset until the price volatility goes down.

While Bitcoin’s correlation to risk the assets is strong and has a small propensity to react to the FED policy and inflation statistics in an unpredictable way. Bitcoin’s price rose to an all=time high near $69,000 after the October inflation figures were revealed at 6.2% and a 30-year high at the time. BTC and stocks fell later that month once the FED chairman saw inflation as no longer a transitory phenomenon. The report noted that Bitcoin could function as a reliable inflation hedge in the underdeveloped countries that have inflationary environments whcih is clearly visible in turkey.