Key Points
- Analysts debate if Bitcoin is more sensitive to global liquidity conditions than other assets, including gold.
- Bitcoin’s correlation to global liquidity conditions could continue for another 5-10 years before it begins acting like gold.
Bitcoin’s sensitivity to global liquidity conditions is a topic of discussion among analysts. Some view Bitcoin as a ‘risk off’ asset, while others see it as a ‘risk on gold’.
According to Lyn Alden, a macro analyst, Bitcoin reacts 83% of the time to global liquidity conditions, more than any other asset. This suggests that Bitcoin is a ‘risk-on’ asset, performing better when interest rates are low or during quantitative easing cycles.
Bitcoin: A Risk-On or Risk-Off Asset?
In comparison to other assets, U.S. equities are the second most reactive to global liquidity conditions, with gold ranking fourth. This indicates that Bitcoin is less of a relative hedging asset than gold. Alden labels Bitcoin as ‘risk-on gold’, due to its new sound money status. However, its understanding is limited among capital allocators, leading them to treat it as a ‘risk-on’ asset.
Alden suggests that Bitcoin’s correlation to global liquidity conditions could continue for another 5-10 years before it starts behaving like gold. However, Robbie Mitchnick, Head of Digital Assets at BlackRock, views Bitcoin as a ‘risk-off’ and hedging asset. He notes that Bitcoin and gold have almost zero long-term correlations to U.S. stocks, with occasional and temporary positive valuations.
Bitcoin’s Future Correlation
Mitchnick believes that rising inflation and investors’ concerns about U.S. political/fiscal sustainability will drive Bitcoin’s growth, making it a ‘risk-off’ asset. However, in the short term, Alden’s projections seem more probable, with Bitcoin behaving like a ‘risk-on’ asset.
According to the Bitcoin Pearson Correlation, the cryptocurrency has increasingly become positively correlated with U.S. stocks in the third quarter. This suggests that Bitcoin’s price action could be forward-looking to U.S. Fed monetary policy updates rather than crypto-specific events in the near term.
In conclusion, the U.S. PCE (personal consumption expenditure) data, due to be released on the 27th of September, will likely drive Bitcoin’s volatility. Additionally, the recent Chinese economic stimulus and expected easing cycle could also boost Bitcoin in the medium run. Therefore, tracking these events could be beneficial for Bitcoin investors and traders in managing risk.
