BTC sinks as it follows Wall Street – Can it still be an “inflation hedge”? |

by Gordon James

Bitcoin’s value has been on a steady decline since the beginning of 2018, with most experts pointing to different factors as the cause. Some have linked it to volatility and lack of regulation in crypto markets while others say that investors are simply moving on from BTC due to its slow transaction speeds.

Bitcoin is a cryptocurrency that has been on the rise for quite some time. The currency was originally designed to be an inflation hedge, but it seems as though this might not be true anymore. Read more in detail here: fed interest rates crypto.

Bitcoin gained sharply after the post-FED meeting news, testing the $40K barrier. However, today’s market attitude seems to have altered, as it fell below $37,000. Wild fluctuations in the cryptocurrency market are usual, but lately they seem to be following Wall Street rather than on-chain data or crypto-related news.

Wall Street follows Bitcoin.

Treasury rates on 30-year bonds increased by roughly 3% to their highest level since 2018. The Nasdaq dropped 4% in hours after the move, while Bitcoin dropped 7% in the same time frame.

BTC sinks as it follows Wall Street – Can it still be an “inflation hedge”? |Bloomberg’s source

The decrease is part of a larger pattern that suggests the crypto market is behaving more like a risky tech stock than a distinct asset class. On May 5th, the FED affirmed a 50 basis point rate rise to fight inflation. The stock market rose as Jerome Powell seemed to take 75 basis points off the table. The fact that Bitcoin has the greatest LTV ratio in history is used to support the notion that this is positive for Bitcoin.

This suggests that more people are investing in Bitcoin through credit cards. A lower-than-expected rate hike might indicate that loan interest rates will remain within reasonable bounds. Any rate hike, though, is intended to battle inflation, which Powell described as “far too high.” Why did Bitcoin respond favourably to news of a strategy to battle inflation if it is a hedge against inflation?

BTC sinks as it follows Wall Street – Can it still be an “inflation hedge”? |TradingView (source)

Is Bitcoin still a safe haven from inflation?

Bitcoin is well-known as an inflation hedge when compared to traditional assets. Ark Invest’s Cathie Wood recently said,

“If inflation is a concern, Bitcoin is an excellent inflation hedge…it also protects against counter-party risk.”

However, considering that Bitcoin responded even more forcefully than Wall Street to predictions that the Federal Reserve would be unable to control inflation, this argument may become increasingly difficult to follow. Analysts are starting to doubt the Federal Reserve’s strategy and capacity to manage inflation. It is reasonable to suppose that an asset class acting as a hedge against something should not follow the same trend. Bitcoin will no longer be a hedge if inflation increases.

According to Bloomberg, Michael Saylor, CEO of Microstrategy,

“It’s all about timing.” It’s gained 400 percent since Microstrategy purchased it two years ago… The traders control it whether you look at it in terms of days, weeks, or months.”

He appears to believe that traders control even the month-to-month price movement of Bitcoin. Although Bitcoin has increased 400 percent since 2020, it is also true that institutional money has poured into crypto.

While many perceive the growth in conventional corporate investment as a positive indication for Bitcoin, it may have had the unintended consequence of connecting it more closely with traditional assets, at least in the near term. Even LFG’s announcement of additional $1.5 billion in Bitcoin purchases hasn’t stopped Bitcoin from following Wall Street’s lead.

A recent Coinbase Institutional report showed that Ethereum is more closely correlated to the S&P500 than Bitcoin. Is the future of Bitcoin, and the crypto markets at large, doomed to follow traditional assets, or can it decouple from the day-to-day swings in the lead up to the 2024 Bitcoin halving?

Over the last 40 days, $ETH has had a higher correlation with the S&P500 than it did with $BTC 📈

The recent Coinbase Institutional report has some amazing numbers… pic.twitter.com/twUPfbqBdu

May 3, 2022 — Coin Bureau (guy.eth) (@coinbureau)

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The “inflation meaning” is a term that describes the process of inflation. The term may be used to describe the increase in prices for goods and services over time, which can lead to an erosion of purchasing power. This can happen when governments print too much money, or when banks create credit out of thin air.

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