BofA says bitcoin is not a reliable store of value or inflation hedge if it trades more like stocks than gold.
Bank of America analysts warned Wednesday that bitcoin’s correlation with equities has risen significantly since its November 2021 peak, and the cryptocurrency currently behaves more like a risky asset than “digital gold.”
Alkesh Shah, lead analyst at the US banking giant, said the growing tendency of bitcoin to trade in lockstep with stocks has removed the benefit investors once saw in the crypto as an inflation hedge.
“Volatility,” Shah wrote in the bank’s report, “means bitcoin no longer trades alongside traditional hedging assets such as gold.”
The BofA analyst suggested that under current conditions the flagship cryptocurrency is unlikely to earn a lasting position as a store of value.
Insider cited the Bank of America strategist noting that bitcoin’s correlation with gold has shrunk to nearly zero. At the same time, the asset’s correlation with a rising stock market reached historic highs during last month’s market sell-off.
Because bitcoin is trading in close step with the Nasdaq 100 and the S&P 500, its appeal as a potential “safe-haven” asset is expected to continue fading.
BofA therefore expects the benchmark cryptocurrency to lead the rest of the digital-asset market in moves tied to broader risk assets for as long as volatility remains elevated.
While analysts view bitcoin’s price swings as a deterrent for investors in developed markets, they say the outlook may differ in emerging economies. The bank believes people in countries suffering from runaway inflation are more likely to view BTC as a better inflation hedge or store of value.
On Wednesday, bitcoin traded near $45,000, maintaining a modest upward trajectory after falling more than 50% from its peak last year. The crypto is still about 35% below that high, while gold has held around $1,800 per ounce.
Meanwhile, equities have seen wide swings so far this year. The Nasdaq fell into a correction in January amid rising inflation and a hawkish tilt from the US Federal Reserve.