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Bitcoin acts less like digital gold and more like a risky stock

Bitcoin plunged as much as 11% on Monday.
Image: Angel Garcia, Bloomberg

When Wall Street makes the case for crypto, it’s all about the benefits of diversification. But when markets go down, Bitcoin has an embarrassing habit of getting swept up in the selloff.

Bitcoin plunged as much as 11% on Monday as stock markets trembled in the wake of a potential default from China Evergrande Group. A correlation analysis shows that U.S. stocks and Bitcoin are moving more in lockstep, with the link between the two assets at the strongest level in a year.

One explanation is simply that Bitcoin remains a volatile investment — meaning that when investors start to de-risk their portfolios, they start dumping crypto.

The current backdrop of big news events explains why Bitcoin and stocks are more closely linked, said Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore. “There’s a bit of uncertainty in the markets with the upcoming Fed taper talks and meetings,” he added.

Other analysts have said Bitcoin is likely to mirror risk-on and risk-off moves as it becomes easier for professionals to access crypto via futures exchanges and exchange-traded funds. In July, when the S&P 500 sank more than 2% during the day, Bitcoin fell about 6% over two days.

To be sure, academic research has shown that Bitcoin can work in portfolio diversification. A study from the University of Bath found that there are benefits to a portfolio from some exposure to crypto.

Other enthusiasts argue that the volatility is because the asset is so new. They see Bitcoin gaining widespread acceptance and eventually more institutional cash, which will stabilize prices so that it behaves more like an alternative hedge.

Still, the moves speak to a long-running debate about what exactly is the investment reasoning behind crypto. Is it a risk asset or safe haven, an inflation hedge or symbol of speculative excess?

The view that Bitcoin can be an another option alongside cash and gold holds a lot of sway, despite all of market’s volatility. Last week, billionaire Ray Dalio told CNBC that he owns some Bitcoin, saying it’s “worth considering all the alternatives to cash.”

© 2021 Bloomberg L.P.

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“Still, the moves speak to a long-running debate about what exactly is the investment reasoning behind crypto. Is it a risk asset or safe haven, an inflation hedge or symbol of speculative excess?”

Bitcoin is a piece of art that no single person; organisation and or country has the control over to increase its quality. The current new blocks which are generated are small but they will too come to an end.

This is a good thing, unlike the central banks that turn on the printing machine and create new value from thin air, they Expropriate Through Inflation. Instead of looking at how many US$ a single BITCOIN costs rather look at how many Dollars a Bitcoin can by you.

Must admit it is a bit of a challenge managing Bitcoin in a portfolio and the lack of regulation does not help.

At present I hold for 3 years as there is no clear indication from SARS and other “regulators” as to what is required for capital transactions.

To rebalance is mostly done by buying and not selling or taking profits as the asset is not old enough.

This increase the risk of ending up with a large amount of crypto and rebalancing cant be done efficiently.

Wonder if “the regulators” even realize the predicament.

Might be best to go offshore and buy a crypto EFT and that will solve the problem.

Does not help SA much does it?????

Asking wall street for advice on bitcoin is like asking your a baby for relationship advice.
They do not belong there and they are clearly bias.

Time to reset the fiat currency debate. Base the new currency, not on gold but on energy in kWhr.

Energy is the new gold.

I note the new, fashionable R-word….”reset” being used, that has been created in the media during the Covid pandemic. It’s because observers (many are Millennials that haven’t experienced for more than 20 years of life/business’s ups and downs..) don’t know what’s happening during “unprecedented” global events….then utter the word “reset” when one is uncertain of the future.

There is no “reset” of any sort. (NO reset in the way be deal with currencies / NO reset in the way we work / No reset in global geopolitics & war. More of the same…if you’re old enough to realise that).

The (military) war between China and Australia/USA/Taiwan is coming. Once the US Navy takes unacceptable losses during stalemate clashes with China, and decide to retract it’s influence from Oceania, the Australian Prime Minister with it’s Cabinet will poop in their pants on the news of an approaching Chinese Naval armada….please “press the RESET button” *lol*

(The only time the globe will come close to a so-called ‘reset’, is after a full nuclear war. Humanity start over. Reset.)

But for any uncertainty humanity faces since 2020, we like to through in the “reset” word as if it has become fashion 😉 Don’t fall for it.

Agreed.

Like “Inclusive”, “equality”. Cyril is a master at using these “popular” expressions.

Some “freedom fighters” talk the talk. Others just go and dance around a burning tire or something.

@Michael sorry that you are irritated by the R word that has been around for many years. It originated in the computer industry. It can occur that a processor enters an unpredictable state and that a reset is needed to regain control and put it in state where it executes normal instructions.

IMHO the analogy is quite useful in describing the current global financial system.

….but if you “reset” a computer, it merely operates faultlessly, like it did before (before the Exception Error blue screen of death occurred) 😉

Resetting does not change algorithms, or the way a computer processes. A reset does nothing, the word “reboot” has been around for many years.

Bitcoin is resilient. It may drop 15% where main index only falls 3%, but it will recover and outgrow other assets at a faster rate. Once there is larger scale adoption with institution money there will be more stability. If you can handle the bumpy ride you will be rewarded IMO.

End of comments.

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