TechCentralTechCentral
    Facebook Twitter YouTube LinkedIn
    Facebook Twitter LinkedIn YouTube
    TechCentral TechCentral
    NEWSLETTER
    • News

      New Openview channels coming as platform turns profitable

      27 May 2022

      Wapa’s Paul Colmer on why Icasa should open up 6GHz for Wi-Fi

      27 May 2022

      How Broadcom’s blockbuster VMware deal happened

      27 May 2022

      The cost for South Africa to quit its coal habit: R4-trillion – study

      26 May 2022

      Apple is feeling the smartphone industry chill

      26 May 2022
    • World

      Musk sued by Twitter investors for stock ‘manipulation’

      27 May 2022

      Broadcom agrees to buy VMware for $61-billion

      26 May 2022

      Musk pledges more equity to fund Twitter deal

      26 May 2022

      Sony looks beyond the console to PC and mobile gaming

      26 May 2022

      Andreessen Horowitz raises world’s largest crypto fund

      26 May 2022
    • In-depth

      Bernie Fanaroff – the scientist who put African astronomy on the map

      23 May 2022

      Chip giant ASML places big bets on a tiny future

      20 May 2022

      Elon Musk is becoming like Henry Ford – and that’s not a good thing

      17 May 2022

      Stablecoins wend wobbly way into the unknown

      17 May 2022

      The standard model of particle physics may be broken

      11 May 2022
    • Podcasts

      Spectrum auction opens up big growth opportunities – Ruckus Networks

      26 May 2022

      Everything PC S01E03 – ‘The story of Intel – part 1’

      25 May 2022

      The rewarding and lucrative careers to be had in infosec

      23 May 2022

      Dean Broadley on why product design at Yoco is an evolving art

      18 May 2022

      Everything PC S01E02 – ‘AMD: Ryzen from the dead – part 2’

      17 May 2022
    • Opinion

      A proposed solution to crypto’s stablecoin problem

      19 May 2022

      From spectrum to roads, why fixing SA’s problems is an uphill battle

      19 April 2022

      How AI is being deployed in the fight against cybercriminals

      8 April 2022

      Cash is still king … but not for much longer

      31 March 2022

      Icasa on the role of TV white spaces and dynamic spectrum access

      31 March 2022
    • Company Hubs
      • 1-grid
      • Altron Document Solutions
      • Amplitude
      • Atvance Intellect
      • Axiz
      • BOATech
      • CallMiner
      • Digital Generation
      • E4
      • ESET
      • Euphoria Telecom
      • IBM
      • Kyocera Document Solutions
      • Microsoft
      • Nutanix
      • One Trust
      • Pinnacle
      • Skybox Security
      • SkyWire
      • Tarsus on Demand
      • Videri Digital
      • Zendesk
    • Sections
      • Banking
      • Broadcasting and Media
      • Cloud computing
      • Consumer electronics
      • Cryptocurrencies
      • Education and skills
      • Energy
      • Fintech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Motoring and transport
      • Public sector
      • Science
      • Social media
      • Talent and leadership
      • Telecoms
    • Advertise
    TechCentralTechCentral
    Home»Sections»Cryptocurrencies»Teenager bitcoin throws an interest rate tantrum

    Teenager bitcoin throws an interest rate tantrum

    Cryptocurrencies By Agency Staff25 January 2022
    Facebook Twitter LinkedIn WhatsApp Telegram Email

    Bitcoin is growing up. The original cryptocurrency turns 13 this year and is showing signs of becoming a more mature financial asset — but watch out for the teenage tantrums.

    This drift towards the mainstream, driven by the big bets of institutional investors, has seen bitcoin become sensitive to interest rates and fuelled a selloff in the coin this month as investors braced for a hawkish Federal Reserve policy meeting.

    The cryptocurrency, born in 2009, was still on the fringes of finance during the Fed’s previous tightening cycle, from 2016 to 2019, and was barely correlated with the stock market.

    It’s not surprising that it’s starting to trade with a lot more sensitivity to interest rates

    Bitcoin has been positively correlated with the S&P 500 index since early 2020, according to Refinitiv data, meaning they broadly move up and down together. Their correlation coefficient has risen to 0.41 now from 0.1 in September, where zero means no correlation and 1 implies perfectly synchronised movement.

    By contrast, that coefficient was just 0.01 in 2017-2019, according to an International Monetary Fund analysis published this month.

    “Now that bitcoin is not entirely held by early adopters, it’s sitting in a 60/40 type portfolio,” said Ben McMillan, chief investment officer of Arizona-based IDX Digital Assets, referring to the institutional strategy of allocating 60% of a portfolio to relatively risky equities and 40% towards bonds.

    “It’s not surprising that it’s starting to trade with a lot more sensitivity to interest rates.”

    Bitcoin closed below the US$40 000-mark for the first time since August 2021 on Friday, some way off its November peak of $69 000.

    Big investors

    The crypto market is increasingly being characterised by big investors, rather than the smaller retail players who drove its early movements.

    The total assets under management of institutionally focused crypto investment products rose in 2021 from $36-billion in January to $58-billion in December, according to data provider CryptoCompare.

    On top of this, there was bumper buying from the corporate likes of Tesla and MicroStrategy, plus hedge funds adding crypto to their portfolios.

    “The cryptocurrency ecosystem grew from a total market valuation of $767-billion at the start of the year to $2.2-trillion by the end of the year,” CryptoCompare said.

    The drift towards mainstream finance raises broader questions in 2022 and beyond about whether bitcoin can retain its role as a diversification play and hedge against inflation.

    IMF researchers said that bitcoin’s increasing correlation with stocks limited its “perceived risk diversification benefits and raises the risk of contagion across financial markets”.

    Bitcoin is also often regarded as a hedge against inflation, mainly due to its limited supply akin to gold, the more established store of value in an inflationary environment. However, its correlation with stocks has seen it become increasingly roiled along with broader markets by the largest annual rise in US inflation in nearly four decades.

    “In the current case, bitcoin is not acting as an inflation hedge. Bitcoin is acting as a risk-proxy,” said Nicholas Cawley, strategist at DailyFX, based in London.

    Jeff Dorman, CIO at digital asset management firm Arca in Los Angeles, added: “It is also a tad ironic given that the bull case for many digital assets in spring 2020 was expectations for higher inflation. Now that we actually have inflation, it is weighing on prices.”

    In the current case, bitcoin is not acting as an inflation hedge. Bitcoin is acting as a risk-proxy

    Evidence of investors increasingly holding onto bitcoin for the long-haul is growing. Kraken Intelligence, a research blog from cryptocurrency exchange Kraken, said that about 60% of all bitcoin in circulation hadn’t changed hands in over one year, the highest level since December 2020.

    Meanwhile funding rates for perpetual swaps across major exchanges — indicative of sentiment among investors betting on bitcoin’s future price movements — were fairly flat, hovering around 0.01%, as per data platform Coinglass.

    Positive rates imply that traders are bullish, as they must pay to hold a long position, while negative rates mean traders must pay to hold a short position, or bet on the price falling. Investors are displaying a notable unwillingness to spend coins, according to blockchain data provider Glassnode.

    “In the face of tumultuous and unconvincing price action, this signals that this cohort of holders are patiently waiting for higher prices to spend their respective supply,” it said.  — Lisa Pauline Mattackal and Medha Singh, (c) 2022 Reuters

    Bitcoin
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email
    Previous ArticleGoogle sued over claims it tracked users despite opt-outs
    Next Article Fear growing of another ‘crypto winter’

    Related Posts

    New Openview channels coming as platform turns profitable

    27 May 2022

    Wapa’s Paul Colmer on why Icasa should open up 6GHz for Wi-Fi

    27 May 2022

    Musk sued by Twitter investors for stock ‘manipulation’

    27 May 2022
    Add A Comment

    Comments are closed.

    Promoted

    Financial advisers: manage your commission and analyse revenue effortlessly

    27 May 2022

    BT, MTN Business form strategic alliance in Africa

    26 May 2022

    Think like a start-up: how to build a competitive digital enterprise

    26 May 2022
    Opinion

    A proposed solution to crypto’s stablecoin problem

    19 May 2022

    From spectrum to roads, why fixing SA’s problems is an uphill battle

    19 April 2022

    How AI is being deployed in the fight against cybercriminals

    8 April 2022

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    © 2009 - 2022 NewsCentral Media

    Type above and press Enter to search. Press Esc to cancel.