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Cryto pt5- Is Bitcoin becoming ‘legitimised’?

Nina Kazmierczak- Partner and Principal Adviser

Sovereign Wealth Partners

With a few topics and themes yet to cover on cryptocurrencies, given the market volatility of 2022 including that of cryptos, it was hard to determine which angle to take for this month’s piece.

Having lost most of its (rally) steam in 2021, cryptocurrency or more so Bitcoin, has been said to move like the SP500. Interest in the correlation of the two markets is gaining interest, more so as the correlation strengthened alongside the tightening of the U.S. Treasury yield curve.

For this month’s piece, we examine the “similarities” and “differences” as outlined on CoinMarketCap by CryptoJelleNL.

Looking at both the SP500 and Bitcoin over the past two years, it can be concluded that both have greatly benefited from the macro environment over the past 2 years-

The growing correlation between the two, on the flip side, has seen a greater divergence between Bitcoin and gold, suggesting that possibly Bitcoin is (currently) not seen as a safe haven as originally labelled.

Key differences-

The debate concerning the differences and similarities between Bitcoin, the S&P 500, gold or other financial instruments is very interesting, albeit perhaps unproductive given the ‘early’ days of bitcoin as a component of financial markets. There is no winner. It is vital to remember that bitcoin remains highly speculative due to the inability to truly ‘value’ a coin and understand the underlying forces directing its price. Other than supply and demand. “Although both the S&P and Bitcoin are valued by the market … , there are no revenue streams, dividend payments or annual reports to gauge the potential value of bitcoin”.

In more recent news, Coinbase, the largest crypto exchange in the United States, has taken out the first bitcoin-backed loan from investment bank Goldman Sachs. The loan is collateralized by some of the 4,487 bitcoin from Coinbase’s holdings, worth around $140 million at the time of writing. The loan features a unique 24-hour risk management structure but requires Coinbase to add to its bitcoin collateral if the price of bitcoin falls too low.

Could this be the beginnings of legitimising Bitcoin as a financial instrument in the same list as commodities, bonds, stocks, and indices?. This is certainly exciting news as it further emphasizes the growing synergies of the digital asset and traditional finance ecosystems.

This is general news only and does not constitute advice or the views of Sovereign Wealth Partners.

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