In 2022, will the world’s largest cryptocurrency have completely changed its function to that of a risk-off asset?
Traditional and crypto finance markets were absolutely crushed on Thursday. Bitcoin (BTC) fell more than 7% on the worst day of trading since 2020, while the Nasdaq dropped more than 5%.
The traders were disappointed, but the long-term prospects for Bitcoin appeared to improve. Although the short-term forecast for Bitcoin appears bleak, one analyst and some evidence indicate that Bitcoin is still on track to becoming a risk-off asset.
Markets are not always mathematical or perfect, but a risk-off asset is one that performs well—or is sought after by investors–when market sentiment sours.
Bonds are risk-off assets. In contrast, tech stocks and cryptocurrencies are characterized as risk-on assets. When the overall “mood” in the market is up and the United States Federal Reserve isn’t raising interest rates, risk-on investments perform well.
However, one Bloomberg analyst shared an intriguing graph illustrating “adoption, maturation, and Bitcoin outperforming equities,” implying that Bitcoin may be revealing its colors as a safe harbor during turbulent times.
The graph demonstrates that Bitcoin’s volatility and performance exceed those of the Nasdaq 100 stock index:
Mike McGlone emphasized that the crypto market at the beginning of May appeared as a nascent revolution in fintech and money.
“The fact that Bitcoin, the world’s most fluid, 24/7 trading vehicle — which was down just around 15% in 2022 to May 3 compared with 20% for the Nasdaq 100 Stock Index — may suggest a risk-off asset transition.”
The report’s author, Michael McGlone, spoke with Cointelegraph in January this year. McGlone believes that when Bitcoin matures and transitions from being a risk-on to a risk-off asset, it will reach $100K by 2022.
He said that the “unstoppable revolution” happening in order to bring money and finance into the 21st century is “remarkable.”
To support the argument, InvestAnswers YouTube provides one chart showing that Bitcoin has performed 6% better than the Nasdaq’s 12 percent lows over the last 90 days.
Finally, Bitcoin has shown that it is a good store of value in recent years, as the Winkelvoss twins have dubbed it. However, in this “risk-off” period, popular YouTube personality Benjamin Cowen said Bitcoin may not reach $100,000 until inflation is under control – not “until inflation is under control.”
As a result, it’s possible to argue that Bitcoin is a “risk-off” asset even when it is trading in the mid $30,000s.
However, there are a few certainties. Do Kwon will continue to purchase billions of dollars’ worth of Bitcoin, Michael Saylor will continue to orange pill big-name investors, and only 21 million Bitcoins will ever exist.