Bank of America: Bitcoin is not acting as an inflation hedge

Previously, one of the market’s main recommendations for bitcoin was that it was a hedge against inflation — meaning its value would remain the same over time. One reason is that its supply is capped at 21 million, which is scarce as demand increases.

But recently, a new report from Bank of America stated that Bitcoin is not acting as an inflation hedge.

Instead, bitcoin has been traded as a risky asset, and since July 2021, Bank of America analysts Alkesh Shah and Andrew Moss noted in a report that data shows the cryptocurrency often moves with the stock market.

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


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

The data shows that on May 7, the three major U.S. stock indexes closed down collectively, the Nasdaq fell 1.4%, and this week fell 1.54%; the S&P 500 fell 0.56%, and this week fell 0.2%; the Dow fell 0.3%, this week. It fell 0.23% for the week. Among them, the Nasdaq fell for five consecutive weeks, setting the longest record since 2012; the S&P 500 fell for five consecutive weeks, setting the longest record since 2011; the Dow recorded six consecutive weekly losses, setting the longest record since 2011.

Almost at the same time, the crypto market fell broadly. Bitcoin fell below the $36,000 mark.

Additionally, Bitcoin is often compared to gold, which has long been seen as an efficient store of value. But the correlation between bitcoin and gold (XAU) has been close to zero since June 21, and has become more negative over the past two months, meaning bitcoin’s price has not, according to the report. Fluctuates in tandem with gold. 

In fact, as early as February this year, Bank of America mentioned that Bitcoin trading is more of a risk 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 macroeconomic situation in the United States is rapidly deteriorating as the Federal Reserve tightens monetary policy to curb inflation, which may affect the U.S. economy. into recession. Against this backdrop, cash, volatility, commodities and cryptocurrencies like bitcoin and ethereum are likely to outperform bonds and stocks, said Michael Hartnett, chief investment strategist at Bank of America.

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