Bitcoin & SP500 Correlation, Inflation hedging asset?
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The perennial debates about Bitcoin is for traditional hedging asset or being risky more over than tech stock, Nobody could define it yet. Meanwhile the FED tightening plans might send the US economy into recession. What insight could we extract from this?
Introduction
First and foremost, we should have some given context about S&P500 and Bitcoin price history. S&P500 index was introduced in 1957 meanwhile Bitcoin was found in 2008. It is hard to consider that this 2 asset could have a right of comparison so please discount on this research.
1) 2019 Bitcoin
Bitcoin price in 2019 is hedging with S&P500 because of interest rate of US was grinding from 1.5 to 2.5 during 1 year and investment started to find some way to hedging against this inflation. So it turned out some of fund went to Crypto space and Bitcoin price was raising
But after 2020 when COVID was occured, FED took a responsive to ‘Cut the federal funds rate’ from 1.5 to 0 — 0.25 aimed to support consumsion spending and lowering the cost of borrowing for households and business.
2) 2020–2022 Bitcoin
After ‘Quantitative Easing’ for support domestic spending, interest fee has been decline dramastically. Some institution or mutual fund were moving thier fund to speculate this asset and name it to ‘The new asset class’.
“Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase,”
— Mathew McDermott, Goldman Sachs’ global head of digital assets
Combined with Defi and Metaverse speculation, Bitcoin has surged from $10,000 to $60,000 USD even the real usecase is still limited. In the S&P500 index side, the tech stock was not perform as well as thier nature.
Summary
2017 Bitcoin burst is one of the global scale speculation phenominon also, it was not different from 2020 but just have gotten bigger. At least the data just show us that inflation rate is significant to US Stock and Bitcoin price
