The correlation between Bitcoin and stocks may be decoupling. And the original cryptocurrency might be working as advertised as an inflation hedge. With inflation soaring, BTC is tracking more like spot gold than US stocks.
At the 30-day view Sunday, the bitcoin price was down 3.11% for the period at UTC 17:30. Stocks, on the other hand, were facing much steeper losses for the month. The S&P 500 Index was down 6.7% for the 30-day period. High-tech sector losses for the past month were deeper. The NASDAQ 100 was down 8.77%.
BTC-Stock Correlation Drops, Gold Rises
Instead of equities, Bitcoin has been acting more like gold over the 30-day view. With the world economy wobbling, gold is holding up best over this timeframe. Spot gold was only down 1.27% over the same period, to $1,643 for the ounce Sunday. The price action lends credence, at least for the time being, to the “digital gold thesis.”
That’s the underlying premise of Bitcoin as a scarce digital resource that can provide investors with an inflation hedge that has the scarcity of gold, the portability of an email, and the individual control and privacy of cash.
Furthermore, that’s what Bitstamp CEO Bobby Zagotta predicted earlier this year. Back in March, the Luxembourg-based crypto exchange’s CEO said that bitcoin could start trading like gold soon. It would just be a matter of time before the asset becomes more mainstream.
Since March, Bitcoin has become more mainstream.
The White House Office of Science and Technology Policy has put bitcoin and the rest of the crypto industry on the table as a regulatory priority this summer. Anthony Hopkins’ NFT collection recently sold out in 7 seconds. Alphabet Inc.’s Google is now accepting BTC in payment for cloud services.
Bitcoin May Be Working As an Intended Inflation Hedge
Bitcoin, meanwhile, may also be working as advertised – as an inflation hedge.
Economic calamity looms ahead. The financial news pages are rife with warnings from JPMorgan’s Jamie Dimon, the US Federal Reserve, and everyone else that an impending recession will be worse than expected. Additionally, inflation is running high. But Bitcoin is holding up better than stocks.
The 24 hours after the latest CPI print showed inflation running higher, BTC price rallied for the following 24-hour period through Saturday. The run-up continued gathering pace through Sunday.
Why? Fundamentally, markets believe users will be able to trust bitcoin more than bureaucracies and that the rest of the world’s markets will learn that sooner or later.
If the Winklevoss twins’ highest hopes for Bitcoin come true and the bitcoin price does 25x over the next decade, it won’t just be hard inflation hedging. It’ll likely be the best-performing asset of the decade for the second one in a row.