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When risk leaves the building, bitcoin feels it too

Johan Bergman

Mar 25

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In the letter ‘Supply, meet Demand’, we tried to reason in a simple way why the correlation between bitcoin and risk assets is higher than the correlation between bitcoin and the so-called ‘safe haven’ assets like gold and US Treasuries. In other words, why is bitcoin trading in tandem with equities?

In this letter, we want to double-click on that correlation with the equity markets. We don’t aim to explain why there is a correlation, but we want to explore what the price of bitcoin might do when the broader equity market takes another punch on the nose.

So let’s quickly summarize the logic we used previously to assess whether there is any case to be made that bitcoin is still trading like a high-beta equity.

Bitcoin:

is a relatively new technology,
is in its adoption phase,
doesn’t provide yield or cashflow of its own,
has big upside potential if it succeeds,
experienced large volatility in price; and
had existential threats (and maybe still has)

If you sum it up like this, it makes sense that bitcoin hasn’t been adopted (yet) as a safe-haven asset. Some investors make the case that the risk-reward for bitcoin has never been better, because it has survived most existential threats from a technical, political, and regulatory standpoint. But even if that’s true, there is more ground to win, hence the adoption phase.