Bitcoin is experiencing an uncharacteristic period of price stability, and its movements relative to other assets may indicate that investors are starting to see the No. 1 crypto as a safe haven again after it was being traded basically as a risk asset, according to Bank of America.
Since the beginning of September, Bitcoin’s price has hovered between $19,000 and $20,000 — remarkable for a digital token that was once synonymous with volatility.
Last week, new data showed that Bitcoin is now less volatile than both the S&P 500 and Nasdaq for the first time since 2020, Decrypt reported.
Bitcoin has traded as a risk asset since July 2021, Barrons reported. Its correlation with both the S&P 500 and Nasdaq 100 stock indexes reached an all-time high on Sept. 13, analysts led by Alkesh Shah at Bank of America wrote in a note last week.
Meanwhile, Bitcoin’s correlation to gold prices, which was at zero or negative from June 2021 to Sept. 5, 2022, has once again turned positive. Gold is commonly seen as an inflation hedge.
Bitcoin’s increasing correlation with gold prices is an important indicator of investor confidence in BTC amid the ongoing economic downturn, according to Shah.
“Bitcoin is a fixed-supply asset that may eventually become an inflation hedge,” Bank of America analysts said. “Investors may view Bitcoin as a relative safe haven as macro uncertainty continues and a market bottom remains to be seen.”
Risk assets are any assets that carry a degree of risk. This includes assets with significant price volatility such as equities, commodities, high-yield bonds, real estate, and currencies.
Bitcoin has traded in close correlation with risk assets since pandemic-era stimulus flooded the economy, and then as the Federal Reserve raised interest rates to try and beat inflation, Bloomberg reported.
There are other indicators of consumer confidence in Bitcoin, according to BofA strategists, who mentioned massive Bitcoin outflows from exchanges to personal or self-hosted wallets.
Large and continuous outflows to personal wallets indicate limited near-term sell pressure, they said. “Investors transfer tokens from exchange wallets to their personal wallets when they intend to HODL, indicating a potential decrease in sell pressure.”