Observers say Bitcoin won't be a hedge in opposition to inflation


Weekly report Arcane Research shows BTC correlation with NASDAQ and S&P 500 shows a positive value. June’s Costumer Price Index (CPI) report caused an increase in correlation because investors are selling assets like BTC as a form of risk management.

This rise is further supported by the collapses of multiple crypto lending firms and companies. The latest CPI report stated that inflation rose to about 9,1 percent in the past month, which will cause an upward surge in the BTC-NASDAQ correlation.

A correlation value shows the direction of asset movement in comparison with another. A positive value indicates a move in the same direction and vice versa.

Crypto crashes

Crashes of crypto-related enterprises cause a drop in correlation as Bitcoin price falls out of trend due to issues in the crypto space. The correlation even briefly touched 0.8. However, that immediately changed when Terra USD collapsed. This event caused the crypto price to crash independently from stocks, causing the correlation value to decline.

However, as crypto-related uncertainty is slowly resolved, correlations should resume an uptrend. Metric value in the past week has shown a slight increase, thus showing a slow but steady increase in confidence in the market's recovery.

Most BTC traders would rather see a volatile price correction and subsequent recovery rather than a slow crawling market. BTC’s price has been stubbornly staying below $24,000 for multiple months. For the last few weeks, bitcoin has been within a narrow range between $19,000 and $22,000 with no major catalyst to the upside and many traders are speculating where the bottom is. This causes a drop in bullish sentiment until the price sees a daily close above $24,000.

Bitcoin volatility

In recent months, after reaching its all-time high in November 2021, it has shown signs of weakness. The weakness escalated into a slow decline in price and major crashes in 2022. Crashes followed by the collapse of crypto-based enterprises only made matters worse. The loss of value causes a drop in confidence from investors and causes the price to lower even further.

The loss of value that Bitcoin is experiencing sheds doubt on the argument made by crypto-maxis that Bitcoin is an efficient hedge against inflation. Logic followed by Bitcoin maxis is that the shortage of BTC amount would keep its value high, therefore acting as a hedge against inflation. However, that statement is not backed by factual information.

In order for Bitcoin to act as a hedge, it needs to function like conventional gold. However, that requires adoption from retail and institution investors in order for Bitcoin to have an increasing intrinsic value.

Anjali Jariwala, the founder of Match Advisors, stated that crypto does not function in the same way as gold, as crypto prices do not hinge on its shortage but rather on the user’s perceived price, in regard to its worth.

“The magnitude of [price] volatility is extremely troublesome for me to see it as a long-term retainer of worth,” said Jariwala.

Billionaire investor Paul Tudor Jones and Maverick’s proprietor and investor Mark Cuban have opposing opinions about Bitcoin. Jones is still optimistic about Bitcoin’s function as a hedge, while Cuban is against the concept, stating it as an “advertising and marketing slogan”.