Bank of America: Bitcoin is not an inflation hedge, and its correlation with gold is close to zero

Investors should not consider bitcoin as an inflation hedge, Bank of America said in a new report, as its correlation with gold is near zero, while its correlation with the stock market has soared to an all-time high.

Analysts at Bank of America, led by Alkesh Shah, wrote that the correlation between bitcoin and gold strengthened significantly in March 2020 as Fed stimulus and inflation concerns drove demand for bitcoin early in the pandemic. But that association has all but disappeared since then, and the correlation is now close to zero,

Conversely, the correlation between Bitcoin and the S&P 500 and Nasdaq 100 has strengthened significantly since July 2021 and reached an all-time high at the end of January this year. This suggests that Bitcoin is being traded more as a risk asset than an inflation hedge.

"We expect deflationary tokens such as Bitcoin to be traded as risk assets until their price volatility decreases," Bank of America analysts wrote.

The cryptocurrency remains highly volatile compared to other assets, including gold, they added.

“We believe the volatility of bitcoin’s price makes it unlikely that it will be used as an inflation hedge/store of value by investors in developed countries, but we note that individuals living in an inflationary environment may be increasingly See Bitcoin as an inflation hedge a lot.”