Bitcoin’s negative correlation with commodity markets is providing more fodder for critics of its suitability as a hedge for inflation.
A 50-day correlation coefficient for bitcoin and gold is at about minus-0.4, the lowest level since 2018, while a similar measure for the token and the Bloomberg Commodity Spot Index is also negative and at a multi-year nadir.
A reading of 1 implies assets are moving in lockstep and minus-1 the reverse.
Photo: Reuters
So while demand for portfolio buffers against price pressures catalyzed commodity performance this year, bitcoin has gone the other way — leaving backers of its store-of-value narrative with a tougher story to sell.
“It could well be that as bitcoin is tested in a high inflation, rising rate environment for the first time, investors are choosing tradition over a new frontier,” Oanda Asia-Pacific Pte senior market analyst Jeffrey Halley said. “Gold has been an inflation hedge for millennia.”
Bitcoin advocates remain undeterred, arguing the cryptocurrency would prove its worth in time partly thanks to a capped supply of 21 million tokens.
MicroStrategy Inc founder Michael Saylor said in a Bloomberg Television interview that he cannot think of “anything better to position our company in an inflationary environment than to convert our balance sheet to bitcoin.”
For now, bitcoin remains tightly correlated with the NASDAQ 100 index, and investors have ditched the token and the technology-heavy gauge this year, fearful that sharply tighter US monetary policy would hurt risk appetite.
The NASDAQ 100 is down about 15 percent this year, while the world’s largest cryptocurrency has shed about 16 percent.
Bitcoin yesterday dropped to its lowest level in more than a month as cryptocurrency continued to be hurt by investors’ risk aversion amid signs of muted new interest in the coins.
The world’s largest cryptocurrency fell as much as 4.2 percent to US$38,580, while the second-largest ether dropped 4.7 percent, declining to as low as US$2,902.
The global cryptocurrency market’s value dropped about 4 percent in the previous 24 hours to US$1.9 trillion, CoinGecko pricing showed.
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