Bitcoin is not an inflation hedge and its correlation with gold is near zero while its ties to the stock market are close to all-time highs, Bank of America says
Bitcoinis not a good inflation hedge, as it does not correlate with gold, according Bank of America analysts.
- Instead, bitcoin is more in step with the stock market, suggesting the coin trades more as a risk asset.
- Bitcoin's volatility also makes it unlikely to be further adopted as a store of value,
Investors shouldn't look to bitcoin as an inflation hedge because it no longer resembles "digital gold" like it did at the start of the pandemic, according to a new note from Bank of America.
The correlation between bitcoin and gold increased dramatically in March 2020, as the Federal Reserve's stimulus moves and inflation fears boosted demand for bitcoin early in the pandemic.
But the link has since nearly evaporated, and the correlation is now close to zero, wrote analysts led by Alkesh Shah.
Instead, the correlation between bitcoin and both the S&P 500 and Nasdaq 100 has increased significantly since July 2021 and hit an all-time highs at the end of January, BofA said. This suggests that the coin trades more as a risk asset rather than an inflation hedge.
"We expect tokens to trade as risk assets until price volatility decreases for deflationary tokens like bitcoin," the analysts wrote.
And compared to other assets, including gold, the
Bitcoin saw huge swings at the close of 2021 and since the new year began. It has plunged by more than 50% from its November high of about $69,000. It has partly bounced back and is currently priced around $44,100.
"We think bitcoin's volatile price makes it unlikely to be adopted as an inflation hedge/store of value for investors in developed countries, but note that individuals living in inflationary environments may view bitcoin increasingly as an inflation hedge," BofA said.
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