A line often repeated among crypto enthusiasts at the Bitcoin 2022 conference in Miami last week: Bitcoin is an excellent gold-like haven and more people should buy it to protect themselves against inflation.
And yet amid heightened inflation concerns this week, bitcoin plunged below $40,000 for the first time since 16 March, tracking a bleed-out in technology and other risky stocks. Again.
The correlation is a sign that bitcoin has evolved into a typical asset class just like so many others. And for traders from the traditional world of finance, who are well-versed in the behaviour of stocks, bonds, commodities and derivatives of all types, this is great news.
The regulatory response to the fallout from the global financial crisis of 2008 squashed a huge chunk of big risk-taking at big banks and other financial firms — gone are some of the complex derivatives and proprietary trading that attracted risk-seeking, sophisticated traders to bank trading floors.
Enter crypto. With fragmented, illiquid markets, whiplash-inducing price swings and a ‘Wild West’ not as encumbered by compliance and regulation (though those are fast catching up), bitcoin offers traders a return to their pre-crisis heyday.
Pro traders love to exploit inefficiencies in markets. And crypto is all over the place. With almost 600 cryptocurrency exchanges across the globe, brokers have told Financial News that a popular trading strategy has emerged where arbitrageurs make money on the wide spreads between bid and ask prices in bitcoin.
Other strategies around crypto are fast emerging. The Bitcoin 2022 conference lured banks like Goldman Sachs, asset managers like Fidelity and portfolio managers from hedge funds of all types. EToro investment analyst and Bitcoin 2022 attendee Callie Cox floated the idea that bitcoin is entering its teenage years.
“The conversations on stage and among attendees have been reminiscent of a tradfi [traditional finance] convention: institutional involvement, regulation, valuations… even compliance,” Cox wrote on 8 April. “Bitcoin may be losing its edge as the radical neo-currency it once was.”
Indeed, bitcoin and the S&P 500 Index have never been so in-step. The S&P 500 and bitcoin have moved in the same direction in 77% of trading days this year, the highest correlation since data started in 2010, eToro found, citing Bloomberg data.
There’s an upside to all this, even from the perspective of the small startups, investor ‘whales’ and everyday bitcoin enthusiasts who swear they are as anti-establishment as they come.
“While bitcoin is still a high-risk investment, more money could help stabilise the price and attract more sceptical investors into the space,” Cox wrote. “Bitcoin is becoming a well-known gateway into crypto and blockchain technology. And the inclusionary aspect of crypto is a rare (and welcoming) trait for a financial product.”
She added: “It’s clear that bitcoin is maturing into a more conventional market, similar to those that some crypto maxis have sworn they’d never touch. Believe it or not, that may be a good thing.”
To contact the author of this story with feedback or news, email Trista Kelley