Not an Inflation Hedge: Bitcoin Showing Close Correlation With Stocks, Says Bank of America Analysts

Bitcoin

Bank of America has released a report recently, questioning the status of bitcoin as an inflation hedge considering its recent correlation with the stock market.

Two analysts at Wall Street giant Bank of America called bitcoin a risk asset rather than an inflation hedge in a recent report, saying the cryptocurrency often follows stock market behavior. Alkesh Shah and Andrew Moss highlighted the high degree of correlation between the S&P 500, Nasdaq 100 and Bitcoin, with the 180 days ending January 31, 2022. The macro trend continues with bitcoin falling to just under 36,000 $ following the decision of the Federal Reserve. the announcement of an interest rate hike last Thursday, alongside a major sell-off in stocks. The Federal Reserve’s announcement of a 0.5% increase in interest rates comes as it struggles to combat rising inflation due to government stimulus packages necessitated by the Covid-19 pandemic. 19.

“Interest rates increased, crypto markets dumped. As far as Bitcoin goes, it looks like we’re going to kiss the $35000 are,” said TikTok crypto pundit Wendy O on Friday.

The war in Ukraine is also a contributing factor

The war in Ukraine also played its part. “Like all risk assets, crypto prices this year have been disproportionately determined by the war in Ukraine, inflation, and the outlook for Fed policy (especially the timing of the cut),” said Ben McMillan of IDX Digital Assets. “So even if we see crypto prices at relatively attractive prices in the longer term, there could still be considerable downside in the near term,” he concluded.

Why is bitcoin considered an inflation hedge?

One of the arguments for bitcoin being an inflation hedge is its limited supply of 21 million. Unlike central banks, which can print fiat money for government relief packages and other purposes and hence increase the circulation of fiat indefinitely, driving up prices of essentials, there can never be more than 21 million bitcoins.

Recently, the former star of the CO and crypto critic Ben McKenzie has derided bitcoin’s pedigree as an inflation hedge, citing its decline from a high of $69,000 in November as reason to question the inflation hedge hypothesis. ‘inflation.

While some consider bitcoin as a store of value, there has been zero correlation between bitcoin and gold since June last year, a value which has turned negative in the past two months. “Bitcoin is still early in its maturity curve to be firmly in the category of digital gold,” said Vijay Ayyar, a senior executive said to CNBC. He noted that bitcoin needs more adoption to be considered digital gold.

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