Do Traditional Investors See Bitcoin as Risk Asset?

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Bitcoin and Gold

As a seasoned crypto investor with a keen eye on market trends, I find Eric Balchunas’ comparison of Bitcoin to “gold as a teenager” intriguing. While gold has long been considered a safe-haven asset, Bitcoin seems to be capturing the imagination and FOMO of investors in an unprecedented way.

Eric Balchunas, a seasoned ETF analyst, has lately drawn a parallel between Bitcoin and “gold in its adolescent stage.” Exploring this connection may offer insights into the perspective of the financial industry regarding cryptocurrencies at present.

As a researcher, I’d express it this way: If you’re pondering the purchase of Bitcoin ETFs but have been denied the opportunity, my hunch is that you’d be quite enthusiastic about them, considering the strong desire and fear of missing out (FOMO) you’ve displayed towards gold and US stocks. Bitcoin, with its impressive outperformance of both, would likely be a source of great interest for you.

— Eric Balchunas (@EricBalchunas) April 8, 2024

Over the past period, the increased appetite for Bitcoin has been accompanied by substantial sales of gold Exchange-Traded Funds (ETFs). These funds saw outflows amounting to $7.7 billion during this timeframe, despite gold’s price hitting a record high at $2,200 per troy ounce.

Do Traditional Investors See Bitcoin as Risk Asset?

As an analyst, I’ve observed that gold Exchange-Traded Funds (ETFs) experienced significant outflows starting in April 2022. These withdrawals have persisted without a notable surge due to the introduction of U.S. spot Bitcoin ETFs. Over this period, approximately $46 billion was taken out from these gold ETFs.

The shift in investments towards Bitcoin-related ETFs in the United States hasn’t solely caused gold’s decreasing appeal to investors, as the trend of gold ETF outflows started prior to the surge of Bitcoin ETFs’ popularity.

Do Traditional Investors See Bitcoin as Risk Asset?

How VC firms invest in crypto

Based on Galaxy’s findings, during the initial quarter of 2024, venture capitalists allocated approximately $2.49 billion to businesses specializing in crypto and blockchain technologies through 603 transactions. This represents a substantial 29% rise in funding volume and a significant 68% growth in the number of deals compared to the previous quarter.

Do Traditional Investors See Bitcoin as Risk Asset?

Historically, the investment trends in the crypto sector by venture capitalists have closely followed Bitcoin’s price fluctuations. However, over the past year, this correlation has weakened. Despite Bitcoin experiencing a substantial price increase since January 2023, there hasn’t been a corresponding rise in venture capital activity within the crypto sector.

In Q1, 2024, Bitcoin experienced a significant rise in value. However, the amount of money invested in it has not yet reached the levels seen before when Bitcoin previously exceeded $60,000.

As an industry analyst, I would attribute the growing disparity between different cryptocurrencies to a complex interplay of sector-specific triggers and larger economic trends. For instance, the approval of Bitcoin Exchange-Traded Funds (ETFs), breakthroughs in fields like staking and modularity, and the emergence of Layer 2 solutions for Bitcoin are industry catalysts that can significantly impact the value and adoption of these digital assets. On the other hand, broader macroeconomic factors such as fluctuating interest rates play a crucial role in shaping market conditions and investor sentiment towards various cryptocurrencies.

BTC as risk-off asset

As a crypto investor, I’ve often heard people warning about the high risks associated with investing in Bitcoin due to its volatile price movements and rapid growth. However, according to Ark-Invest’s perspective, Bitcoin is more than just a high-risk asset. In fact, they argue that the underlying network embodies traits of risk-off assets.

As a Bitcoin analyst, I can tell you that being the first decentralized, independent, global, rules-based digital currency, Bitcoin offers a unique solution to mitigate systemic risks inherent in traditional financial systems which heavily rely on centralized intermediaries. By serving as both a platform for transferring and storing the scarce digital monetary asset called Bitcoin, it provides an alternative means of value exchange that is not subjected to the control or influence of any single entity.

Do Traditional Investors See Bitcoin as Risk Asset?

As a Bitcoin analyst, I’d describe it this way: Different from conventional finance relying on central authorities, Bitcoin functions with a decentralized system led by a worldwide network of peers. This setup fosters automatic, publicly accessible, and transparent rule execution.

The unpredictability of Bitcoin’s price is surprisingly linked to its monetary policy, bolstering its reputation as a self-governing monetary system. In contrast to traditional central banks, Bitcoin does not emphasize price stability as its primary goal; instead, it regulates the production of new Bitcoins to ensure uninhibited capital movement. This mechanism is responsible for Bitcoin’s volatile price movements, which are influenced by the balance between demand and supply.

Do Traditional Investors See Bitcoin as Risk Asset?

In simpler terms, examining Bitcoin‘s value next to the Fed Funds Rate reveals its ability to thrive under various interest rates and economic situations. Remarkably, Bitcoin has experienced substantial growth in periods of high as well as low-interest rates.

For the last 10 years, Bitcoin has demonstrated robustness during market downturns, consistently outperforming prices during those uncertain times.

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2024-05-13 05:12