"In the current case, bitcoin is not acting as an inflation hedge. However, its correlation with stocks has seen it become increasingly roiled along with broader markets by the largest annual rise in U.S. IMF researchers said that bitcoin's increasing correlation with stocks limited its "perceived risk diversification benefits and raises the risk of contagion across financial markets".īitcoin is also often regarded as a hedge against inflation, mainly due to its limited supply akin to gold, the more-established store of value in an inflationary environment. The drift towards mainstream finance raises broader questions in 2022 and beyond about whether bitcoin can retain its role as a diversification play and hedge against inflation. "The cryptocurrency ecosystem grew from a total market valuation of $767 billion at the start of the year to $2.22 trillion by the end of the year," CryptoCompare said. On top of this, there was bumper buying from the corporate likes of Tesla (TSLA.O) and MicroStrategy (MSTR.O), plus hedge funds adding crypto to their portfolios. The total assets under management of institutionally focused crypto investment products rose in 2021 from $36 billion in January to $58 billion in December, according to data provider CryptoCompare. The crypto market is increasingly being characterised by big investors, rather than the smaller retail players who drove its early movements. "It's not surprising that it's starting to trade with a lot more sensitivity to interest rates."īitcoin closed below the $40,000-mark for the first time since August 2021 on Friday, some way off its November peak of $69,000. "Now that bitcoin is not entirely held by early adopters, it's sitting in a 60/40 type portfolio," said Ben McMillan, chief investment officer of Arizona-based IDX Digital Assets, referring to the institutional strategy of allocating 60% of a portfolio to relatively risky equities and 40% towards bonds. Their correlation coefficient has risen to 0.41 now from 0.1 in September, where zero means no correlation and 1 implies perfectly synchronised movement.īy contrast, that coefficient was just 0.01 in 2017-2019, according to an International Monetary Fund analysis published this month. Register now for FREE unlimited access to Registerīitcoin has been positively correlated with the S&P 500 index (.SPX) since early 2020, according to Refinitiv data, meaning they broadly move up and down together.
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