Bitcoin (BTC) is proving its flexibility as an investment, rising along with tech and social-media stocks when those securities are rallying and still managing to eke out gains when traditional-market investors suddenly go cold on the technology trade, according to ByteTree Chief Investment Officer Charlie Morris.
The secret? Bitcoin's investment narrative deftly shifted toward its potential use as an inflation hedge as a risk-off mood in recent weeks on Wall Street triggered a retreat from tech stocks and related investments such as Cathie Wood's ARK Innovation exchange-traded fund.
"Bitcoin enjoys the current macroeconomic environment as it is a hard asset that benefits from rising inflation," Morris wrote Wednesday in a weekly newsletter. "It also likes risk-on conditions, which are reflected by rising bond yields. In contrast, tech prefers risk-on conditions when inflation is low, often described as 'goldilocks.'"
The discussion fits into the broader investment questions surrounding bitcoin, a 12-year-old asset (and technology) whose price seems to just keep going up. It's nearly doubled already this year after quadrupling in 2020 and doubling the year before that. Is it a digital version of gold? An alternative to government currencies? A commodity? A unit for peer-to-peer payment? A decentralized network? Just something to speculate on? Estimating its value or even simply trying to pinpoint its essence can be elusive.
Bitcoin has proven in the past to be remarkably correlated with social media stocks, according to Morris. So it might stand to reason that, recently, as the stocks have retreated amid concerns that higher bond yields might hit earnings or reduce the appeal of risky investments, bitcoin might take a hit as well.
Instead, investors pivoted to reemphasizing bitcoin's potential worth as an inflation hedge, and prices for the cryptocurrency have continued to rise.
As of Thursday, bitcoin had gained for seven straight days, its longest winning streak this year, with prices currently around $57,500, just shy of the all-time high above $58,000 reached last month.
“I have long argued that bitcoin has links to tech and social media stocks in particular," Morris wrote. "That’s hardly a revelation, nor controversial, because bitcoin is a network effect situation that rose from the internet."
Investors are now seeing bitcoin as both an inflation hedge and risk asset – a double positive that could break its correlation with tech stocks.
“Tech stocks are expected to make huge profits in the future. If those profits are inflated away, that’s less interesting than in a hard money environment,” Morris says. Bitcoin "benefits from rising inflation. It also likes risk-on conditions, which are reflected by rising bond yields.”