The Bank of America (BoA) has brushed off bitcoiners advertising the popular crypto as an anti-inflationary digital gold. The bank says bitcoin is nothing sort of it. It believes BTC will neither be adopted as an inflation hedge in developed countries nor lose its position as a risk asset.
Since July of 2021, BTC has been trading as a risk asset. Its price showed signs of recovery following a 50% crash in May 2021. A report by BoA highlighted that correlation on January 31 between bitcoin and the S&P 500 (SPX), and between bitcoin and Nasdaq 100 (QQQ) was at an all-time high and 99.73% respectively. It said bitcoin managed to stay near-zero correlation with gold.
Some investors prefer to use BTC as a hedge against rampant currency devaluation because it has a fixed supply issuance schedule. Analysts believe the popular crypto will be mined more slowly across time until it reaches a cap of 21 million coins. Another reason as why some investors push away gold for bitcoin.
The Bank of America says that bitcoin has a small propensity to react to the Federal Reserve policy and inflation statistics. This is despite the cryptocurrency’s correlation to risk assets being strong. In October 2021, bitcoin and stocks fell after the Fed chairman said inflation is no longer a transitory phenomenon.
However, the bank acknowledged that BTC could function as a reliable inflation hedge in underdeveloped countries, which have more inflationary environments. The bank says it’s unlikely to be adopted in developed countries because of its volatile price.