{"id":170776,"date":"2021-02-04T20:18:15","date_gmt":"2021-02-04T17:18:15","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/hedge-or-cyclical-eternal-debate-on-bitcoins-status-sees-a-new-twist\/"},"modified":"2021-02-04T20:18:15","modified_gmt":"2021-02-04T17:18:15","slug":"hedge-or-cyclical-eternal-debate-on-bitcoins-status-sees-a-new-twist","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/hedge-or-cyclical-eternal-debate-on-bitcoins-status-sees-a-new-twist\/","title":{"rendered":"# Hedge or cyclical? Eternal debate on Bitcoin\u2019s status sees a new twist"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3d12709e496\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3d12709e496\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/hedge-or-cyclical-eternal-debate-on-bitcoins-status-sees-a-new-twist\/#A_different_kind_of_hedge\" >A different kind of hedge<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/hedge-or-cyclical-eternal-debate-on-bitcoins-status-sees-a-new-twist\/#Still_not_cyclical\" >Still not cyclical?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/hedge-or-cyclical-eternal-debate-on-bitcoins-status-sees-a-new-twist\/#Crypto_assets_distinctive_features\" >Crypto assets\u2019 distinctive features<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Hedge or cyclical? Eternal debate on Bitcoin\u2019s status sees a new twist <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDIvODIyZmY5ZDgtOTA5Zi00NzEyLTkwYTctODJlN2MxZDRiNDI3LmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-5a136f3a>One of the most enduring cryptocurrency-related narratives revolves around the search of crypto\u2019s definition as an asset class. Is Bitcoin (BTC) more of a digital currency or digital gold? Do its unique properties warrant viewing it as something completely distinct from the established categories of financial instruments? A recently published report by JPMorgan Chase\u2019s strategists has sparked yet another round of such debates.<\/p>\n<p>The conclusions that the report presents are at odds with the \u201cBitcoin as a safe-haven asset\u201d trope that has become somewhat conventional wisdom lately. The authors contend that the original cryptocurrency is actually not that great of a hedge in a situation when markets are undergoing severe stress and that expansion of retail ownership has rendered it more similar to a cyclical asset that moves up and down along with the stock market.<\/p>\n<p>It\u2019s reasonable to discuss the argument of JPMorgan\u2019s analysts with finance-savvy commentators to assess its strength, as well as to weigh in on what the recent developments in crypto markets can tell the <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a> public about the nature of digital assets as a class.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"A_different_kind_of_hedge\"><\/span>A different kind of hedge<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A good hedge asset should be resilient to the forces that can diminish the value of most other assets in an investor\u2019s portfolio. The case of JPMorgan\u2019s strategists against BTC\u2019s hedging capacity seems to heavily rely on observations from the last year, when both crypto and traditional markets plummeted in March over the COVID-19 scare kicking in, only to start climbing to their respective record highs shortly thereafter.<\/p>\n<p>The argument presented in the report is also rife with assumptions. It presumes a very particular definition of a hedge asset that only takes into account a limited number of risks it safeguards against. Furthermore, it implies that cryptocurrencies behave more or less uniformly across various market conditions.<\/p>\n<p>Brock Pierce, chairman of the Bitcoin Foundation, noted to Cointelegraph that as a maturing asset, Bitcoin\u2019s behavior does not necessarily follow a rigid pattern in all situations: \u201cI agree with them, in a sense, that it is not a \u2018hedge asset\u2019 because it\u2019s been growing into what it can be.\u201d He went on to add:<\/p>\n<blockquote><p>\u201cAt times, it was a great hedge against inflation in many countries throughout the world. At times, where there is general \u2018risk-on,\u2019 or \u2018risk-off\u2019 in the markets \u2014 stock markets and bond markets \u2014 we are seeing that Bitcoin may follow that \u2014 as it tends to be the most \u2018liquid\u2019 asset for many people.\u201d<\/p><\/blockquote>\n<p>Amber Ghaddar, founder of decentralized capital market AllianceBlock, who had previously held senior positions at JPMorgan, commented to Cointelegraph that \u201cas a pure hedging asset and on shorter intra-month and intra-quarter timeframes, Bitcoin has been a poor hedge to acute market stress compared to the USD, CHF and JPY.\u201d Therefore, she agrees with the assessment from JPMorgan: \u201cThis is due to the fact that Bitcoin lacks the short base that sponsors USD strength during market shocks.\u201d<\/p>\n<p>However, Ghaddar added, this is not synonymous with BTC being unable to serve as a hedge to events like a destabilizing rise in inflation or a policy shock. To her, Bitcoin is best described as: <\/p>\n<blockquote><p>\u201cHigh volatility, high return investment that is driven by its idiosyncratic characteristics and delivers portfolio diversification rather than a pure hedging tool in a portfolio.\u201d<\/p><\/blockquote>\n<p>Another point to note is that amid the black-swan, pandemic-induced market collapse of March 2020, nearly all liquid assets were highly correlated in their simultaneous decline. So this doesn\u2019t necessarily mean that Bitcoin and stocks should demonstrate a similar relationship across the board, for example, between S&amp;P 500 and BTC\u2019s price. <\/p>\n<p>Seamus Donoghue, vice president for sales and business development at digital asset infrastructure provider Metaco, told Cointelegraph that in the wake of acute liquidity events, such as the stock market crash in March 2020, correlations for all assets trend toward 100%, and all kinds of assets get sold to raise liquidity. Furthermore, he questioned how the report only considers certain risks but not others:<\/p>\n<blockquote><p>\u201cThe authors seem to conflate hedging acute liquidity events, which is always about moving all assets to cash, and hedging risks such as monetary and fiscal mismanagement. It is important to distinguish between short-term liquidity impacts on assets from fundamental attributes and properties of hard assets like gold and Bitcoin.\u201d<\/p><\/blockquote>\n<p>Konstantin Richter, CEO and founder of blockchain firm Blockdaemon, commented to Cointelegraph that aside from the largely exogenous shock from the pandemic in spring 2020, there hasn\u2019t really been any adversarial conditions in the economy that would truly test crypto against other assets as a store of value hedge. Richter is convinced that once such a test will be <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>lied, digital assets will outperform any competition.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Still_not_cyclical\"><\/span>Still not cyclical?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>On the subject of whether Bitcoin is coming to resemble discretionary stocks that are doing well when the overall economy is thriving, those who shared their thoughts with Cointelegraph largely remained unconvinced. Ghaddar disagrees that \u201cretail adoption is raising its correlation with cyclical assets.\u201d In fact, she believes that it works the opposite way: \u201cMost retail investors prefer to HODL (buy-and-hold) the Bitcoin. The same is not true for new institutional and speculative money that has recently been poured into Bitcoin.\u201d<\/p>\n<p>Ghaddar also noted that the correlations observed by the authors of the report could be simply an artifact of a measurement tool they used. When applying Spearman\u2019s correlation coefficient instead of the widely used Pearson\u2019s coefficient, Ghaddar\u2019s team did not observe crypto assets\u2019 prices varying together with other asset classes significantly.<\/p>\n<p>Some even called JPMorgan\u2019s motivation to reach the conclusions outlined in the report into question amid the rollout of the JPM Coin. Louisa Murray, vice president and head of sales at banking platform Railsbank, commented:<\/p>\n<blockquote><p>\u201cOne can assume it is where their interests ultimately lie. If we dismiss Bitcoin as a cyclical asset, we forget the fundamental principle of why there is Bitcoin \u2014 namely, as an alternative electronic payment system to the financial institutions that act as the \u2018trusted\u2019 third party in financial transactions. It\u2019s, however, these third parties that add additional costs to any traditional financial transactions, which Bitcoin tries to solve.\u201d<\/p><\/blockquote>\n<h2><span class=\"ez-toc-section\" id=\"Crypto_assets_distinctive_features\"><\/span>Crypto assets\u2019 distinctive features<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>At the end of the day, what is left in terms of the properties of crypto as an asset class? Pierce thinks that there is still much fluidity to Bitcoin\u2019s status as a financial instrument, as he commented: \u201cWhat we have learned about Bitcoin\u2019s nature as an asset in the last year is: What it is, and what it can be, and how it will be able to affect people\u2019s portfolios and investment decisions is evolving at a rapid pace.\u201d<\/p>\n<p>There are also unique features that one can pinpoint with confidence. Bitcoin\u2019s key advantages are faster settlement and a wider global exposure compared to any asset in the traditional financial market. Ultimately, cryptocurrencies now have a chance to develop key characteristics \u2014 such as means of payment \u2014 and not merely as the means of investment. In the long term, this can untangle them from traditional financial assets.<\/p>\n<p>Furthermore, Murray anticipates crypto becoming more regulated and accessible, which would reduce market volatility. With the younger generations investing their money differently, Murray expects to see \u201cnew cyclical patterns occurring in the future, possibly with markets following crypto, and not vice versa.\u201d<\/p>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/hedge-or-cyclical-eternal-debate-on-bitcoin-s-status-sees-a-new-twist\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Hedge or cyclical? Eternal debate on Bitcoin\u2019s status sees a new twist &#8221; One of the most enduring cryptocurrency-related narratives revolves around the search of crypto\u2019s definition as an asset class. Is Bitcoin (BTC) more of a digital currency or digital gold? Do its unique properties warrant viewing it as something completely distinct from&#8230;<\/p>\n","protected":false},"author":1,"featured_media":170777,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDIvODIyZmY5ZDgtOTA5Zi00NzEyLTkwYTctODJlN2MxZDRiNDI3LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,75802,71939,117,71835,70359],"class_list":["post-170776","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-jpmorgan","tag-banks","tag-business","tag-gold","tag-stocks"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/170776","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=170776"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/170776\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/170777"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=170776"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=170776"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=170776"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}