WILL BIT­COIN BE THE GO-TO AS­SET DUR­ING THE IN­COM­ING STAGFLA­TION?

AMBCrypto Weekly - - News -

Dur­ing re­ces­sion or in­fla­tion, gold has al­ways been the go-to and the old­est as­set with a steady re­turn. How­ever, con­sid­er­ing bit­coin’s rel­a­tively higher cor­re­la­tion with it shows that bit­coin and gold can both be used to help against the in­com­ing stagfla­tion.

Bit­coin has been termed as many things, an un­cor­re­lated as­set, di­ver­si­fi­ca­tion for port­fo­lios, a bub­ble, etc. How­ever, with the Coro­n­avirus pan­demic still af­fect­ing world mar­kets, the nar­ra­tive has evolved yet again. The sud­den halt of sup­ply chains and in­dus­tries has caused ir­repara­ble dam­age to the econ­omy of most coun­tries. In In­dia, Re­serve Bank of In­dia re­it­er­ated that the GDP is ex­pected to be in the neg­a­tive.

As this con­tin­ues, the fear of stagfla­tion is grow­ing; stagfla­tion is when the eco­nomic out­put is de­creas­ing while there is an in­crease in in­fla­tion.

With bit­coin hit­ting $12,000 re­cently, the hype around the bull run is build­ing up. Hence, it is ap­pro­pri­ate to dis­cuss if bit­coin will be able to han­dle the stagfla­tion needs for in­sti­tu­tional in­vestors look­ing to di­ver­sify their port­fo­lios.

As men­tioned in the pre­vi­ous ar­ti­cle, Vac­nEck’s ex­per­i­ments with di­ver­si­fi­ca­tion showed that small ad­di­tion of bit­coin to the 60% eq­uity, 40% bond port­fo­lio yielded in re­duc­tion of volatil­ity. This is im­por­tant as com­bin­ing bit­coin’s low cor­re­la­tion with tra­di­tional mar­kets shows that dur­ing the times of sell-off, bit­coin will help re­duce losses.

Ad­di­tion­ally, Glassnode’s Re­serve Risk in­di­ca­tor showed bit­coin in the green zone [a zone of low risk and high reward]. The low cor­re­la­tion with the tra­di­tional mar­ket and the Glassnode in­di­ca­tor showed that it is the best time to in­vest in bit­coin.

Bit­coin has been hint­ing to­ward the start of a new bull run, es­pe­cially with MVRV in­di­ca­tor hit­ting 1.25 level. Breach­ing the $12,000 level would set the price up to hit $15,000 and per­haps soon the $20,000 level, the ATH, which will kick start the bull run.

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