BofA states that Bitcoin is not an inflation hedge or store of value, as long as it trades more closely to stocks than gold.
Bitcoin’s correlation to stocks has increased significantly since its peak in November 2021 and currently trades more like a risk asset that its reference as digital gold, analysts at Bank of America said on Wednesday.
According to Alkesh Shah, a lead analyst at the US banking giant, Bitcoin’s growing lockstep trading with stocks has removed the benefit the cryptocurrency had for investors as a hedge against inflation.
Volatility, Shah said in a note from the bank, meant it’s no longer trading alongside traditional hedge assets such as gold.
According to the BofA analyst, the cryptocurrency’s current popularity as a store-of-value is unlikely.
Insider reports that a Bank of America strategist stated that the correlation between Bitcoins and gold has fallen to almost zero levels. Meanwhile, the crypto asset has seen the correlation with stocks surge to all-time highs during last month’s market sell-off.
And with Bitcoin trading in lockstep with the Nasdaq 100 and the S&P 500, it’s expected the digital gold would continue to lose its appeal as a possible ‘safe haven asset.’
BofA therefore expects benchmark crypto to lead other digital asset markets in remaining risk assets so long as volatility remains high.
The analysts believe volatility in Bitcoin prices will be a factor that puts off investors in developed markets, but the outlook could be different in emerging economies. According to the bank, those living in countries with runaway inflation will likely see BTC as an inflation hedge or store-of-value.
Bitcoin traded at near $45,000 Wednesday, a slight uptrend in the currency’s direction after falling more than 50% since its peak last year. Bitcoin is now at 35% of its peak while gold remains around $1,800 an ounce.
Stocks are also volatile year-to date, with Nasdaq entering correction in January, amid rising inflation, and a hawkish bias from the US Federal Reserve.
