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A dream time
The debate over whether Bitcoin as a speculative asset or an inflation hedge was put to the test this week, and the evidence so far continues to leverage its predecessors.
Bitcoin fell along with other risky assets Thursday as Federal Reserve Chairman Jerome Powell made it clear that the central bank will stick to its monetary policies even as interest rates begin to rise.
As spike levels and inflation indicators begin to emerge, investors may be looking at their risk against inflation – in particular, the “printing of money” going on at the Fed. But for now, Bitcoin doesn’t look like much of a hedge, as some leaders in the financial and business world suggested it would. After rising above $ 51,000 on Wednesday, Bitcoin fell sharply Thursday after the Fed’s speech and was trading closer to $ 49,000 on Friday.
To be sure, rising interest rates in the long run do not equate to inflation, so market weakness may not currently be a fair test for Bitcoin. Inflation has not yet manifested in the U.S. economy, and may not end even with the Fed’s loose monetary policies.
Also, market signals are mixed – and even completely weird – right now. The dollar has been rising, so has oil. Both usually move in opposite directions. Other inflation hedges like gold have outperformed in recent days. Gold futures have fallen on each of the past three days.
Bitcoin may ultimately work better as an inflation hedge, or investors may adopt it as a way to diversify their records even if it is not a major inflation hedge.
“Bitcoin’s lack of an almost meaningful relationship with other assets is presented as a diversification, but given its volatility, we believe that adding it to a larger package is about the product of multiplication, particularly considering the head-on nature of his late moves, ”Christopher Louney wrote RBC Capital Markets in a note explaining why Bitcoin and gold are not good substitutes for each other.
Companies that own or are involved in the industry have also been falling. The
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(ticker: BLOK), created by Toroso Investments to track some of these companies, has fallen 13% from Monday’s close. Michael Venuto, Toroso’s chief investment officer, says this week’s investor gut response has not been a bet on Bitcoin.
“I think that’s exactly what happened to gold,” Louney said. “Inflation scared people and money went to money. It didn’t go into Bitcoin. It didn’t go to gold ”because people wanted liquidity right away.
The inflation trade, he says, can take time to play out.
“I think just like gold, Bitcoin is not just a one-to-one inflation hedge,” he said. “Most of the time when there is inflation, gold performs lower, so that we all understand that it is inflation, and then it catches on. ”
The underperformance of Bitcoin will not surprise Louney. “You know, Bitcoin is a risky asset. It’s not a real inflation hedge. ”
Write to Avi Salzman at [email protected]