Bank of America: Bitcoin does not serve as an inflation hedge

Previously, one of the main arguments for Bitcoin was that it was a hedge against inflation — meaning its value would remain constant over time. One reason for this was that its supply was capped at 21 million, making it scarce as demand increased.

But recently, a new report from Bank of America pointed out that Bitcoin does not serve as an inflation hedge.

Instead, Bitcoin has been trading as a risk-on asset since July 2021, Bank of America analysts Alkesh Shah and Andrew Moss noted in a report that data showed the cryptocurrency often moves with the stock market.

On January 31, the correlation between Bitcoin and the S&P 500 hit an all-time high based on the past 180 days. The correlation between Bitcoin and the Nasdaq 100 is also near an all-time high.

This relationship between Bitcoin and the stock market has been made clear recently. In the current macro environment, the two are moving in lockstep. For example, after the Federal Reserve said it would raise interest rates by a half percentage point on Thursday, Bitcoin’s value plummeted along with stocks, and the sell-off continued today. Analysts expect this correlation to hold in the near future.

Data shows that on May 7, the three major U.S. stock indexes closed down collectively, with the Nasdaq down 1.4%, a cumulative decline of 1.54% this week; the S&P 500 down 0.56%, a cumulative decline of 0.2% this week; and the Dow down 0.3%, a cumulative decline of 0.23% this week. Among them, the Nasdaq fell for five consecutive weeks, setting a record since 2012; the S&P 500 fell for five consecutive weeks, setting a record since 2011; and the Dow fell for six consecutive weeks, setting a record since 2011.

Almost at the same time, the crypto market fell across the board, with Bitcoin falling below the $36,000 mark.

In addition, Bitcoin is often compared to gold, and Bitcoin has always been seen as an effective means of storing value. However, the report said that since June 21, the correlation between Bitcoin and gold (XAU) has been close to zero and has become more negative in the past two months, which means that the price of Bitcoin has not fluctuated in sync with gold.

In fact, as early as February this year, Bank of America mentioned that Bitcoin trading is more like a risky asset than an inflation hedge. However, it is worth mentioning that in April this year, Bank of America strategists warned in a weekly research report that the US macroeconomic situation is rapidly deteriorating as the Federal Reserve tightens monetary policy to curb inflation, which may push the US economy into a recession. Michael Hartnett, chief investment strategist at Bank of America, said that in this context, cash, volatility, commodities and cryptocurrencies such as Bitcoin and Ethereum may perform better than bonds and stocks.