Investors See Bitcoin as Inflation Hedge, Nickel Digital's Survey Shows

The latest moves in crypto markets, in context

March 7, 2022

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Good morning, and welcome to First Mover. Here's what's happening this morning:

Market Moves: Macro factors continue to weigh over bitcoin. Weekly chart offers hope to battered bulls.
Featured stories: Professional investors see bitcoin as an inflation hedge, a hedge fund survey shows.

And check out the CoinDesk TV show "First Mover," hosted by Christine Lee, Emily Parker and Lawrence Lewitinn at 9:00 a.m. U.S. Eastern time. Today's show will feature guests:

Ben McMillan, CIO, IDX Digital Assets
Lisa Mayer, founder and CEO, Boss Beauties
Arthur Falls, team member, cycle_dao

Today's newsletter was edited by Omkar Godbole and produced by Bradley Keoun.

Market Moves

By Omkar Godbole

Legacy risk assets saw yet another sell-off early Monday as surging crude prices threatened to push the global economy into stagflation.

Gold responded by rallying above $2,000 per ounce for the first time since August 2020. However, bitcoin, often touted as digital gold, fell under $38,000 early Monday.

While the cryptocurrency has since bounced back to $38,700 alongside a recovery in the S&P 500 futures, prices remain well below last week's highs above $45,000.

"The pullback [from past week's high] is being driven by macroeconomic issues," Quinn Thompson, head of growth at blockchain-powered institutional capital marketplace Maple Finance, told CoinDesk in a Twitter chat. "Global commodity prices are going to all-time highs (part supply chain issues, part fiat debasement) and are weighing heavily on consumers."

"With previous economic slowdowns occurring in a low inflation environment, central banks are facing a new problem this go around and may not be able to add additional monetary stimulus as support," Quinn Thompson added.

While money markets have scaled back expectations for rate hikes by the Federal Reserve (Fed) in the wake of the Russia-Ukraine war, the central bank is still seen raising rates at least five times this year. The first 25 basis point rate rise is likely to happen next week.

In other words, the Fed put – a notion that the central bank will come to the rescue if assets tumble – appears to have expired. That said, emerging economies and European countries, which are likely to take a bigger hit from the Russia-Ukraine tussle, may keep their policy accommodative, lending support to bitcoin and asset prices, in general.

"I suspect growth projections for 2022 around the world will need to be sharply revised lower, and it will be interesting to see what the central banks of the world will do. I believe Europe and Asia will halt thoughts of monetary policy normalization, and with Europe on the front lines, I can't blame them," Jeffrey Halley, senior market analyst, Asia Pacific, OANDA, said in an email.

Bitcoin rose more than 14% to nearly $45,000 on Feb. 28, decoupling from the lingering weakness in stock markets to register its biggest single-day percentage gain in over a year. The rally was supposedly driven by expectations that Russians and Ukrainians would pour money into crypto to hedge against the heightened volatility in their fiat currencies.

"Last week's relief rally stemmed from the idea that Russia (and others) could potentially be large buyers of BTC as an alternative reserve asset after the world was able to unanimously disconnect a country from the global monetary system almost overnight," Maple Finance's Thompson said.

While the cryptocurrency has reversed the past week's spike, it has been relatively more resilient than traditional markets since Russia invaded Ukraine on Feb. 25, according to Coinbase. "Bitcoin's $34,400 support level was tested twice on February 25 and rallied both times, indicating strong buy interest around that price," Coinbase's February review published last week said.

Several reasons, including expectations of lesser Fed rate hikes, appear to have cushioned bitcoin from continued sell-off in stocks, the exchange noted.

According to technical charts, the cryptocurrency may be close to turning the corner.

On the weekly price chart, bitcoin formed an inverted hammer candle at the Ichimoku cloud support last week.

The candlestick pattern is identified by a long upper wick and a small body. The appearance of the candle after a prolonged bear run or at major lows often pretends bullish reversal.

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Crypto Prices

Bitcoin (BTC)

See the latest price here

Ether (ETH)

See the latest price here

The following are the biggest movers in the CoinDesk 20 digital assets over the past 24 hours:

Biggest Gainers:

Asset	Ticker	Returns	Sector
XRP	XRP	+1.3%	Currency
Algorand	ALGO	+0.5%	Smart Contract Platform
Bitcoin	BTC	+0.1%	Currency

Biggest Losers:

Asset	Ticker	Returns	Sector
Solana	SOL	−3.5%	Smart Contract Platform
Chainlink	LINK	−3.0%	Computing
Filecoin	FIL	−2.7%	Computing

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

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Latest Headlines

Professional Investors See Bitcoin as Inflation Hedge

By Omkar Godbole

While bitcoin's 60-day correlation with gold has stayed mostly negative to flat for the most, things may change in the future.

Hedge fund Nickel Digital Asset Management's latest survey of institutional investors and wealth managers, who collectively manage around $110 billion in assets, shows that most heavyweight market participants see the leading cryptocurrency as a store of value asset.

"Three in four professional investors (73%) believe that because there are a finite number of bitcoins, the cryptocurrency is a viable asset to hedge against rising inflation," the survey's press release shared with CoinDesk said.

Further, 78% of the respondents said bitcoin's unique supply-side dynamics would bring more institutional allocation to bitcoin.

Bitcoin's supply has a hard limit of 21 million coins and the pace of supply expansion is cut by 50% every four years via a programmed code called mining reward halving. That puts the cryptocurrency's monetary policy in stark contrast to traditional central banks, which have been expanding the fiat money supply for decades.

The institutionalization of bitcoin seen since the March 2020 crash has proved to be a double-edged sword. While on the one hand, it has legitimized crypto as an asset class, on the other, it has led to a stronger correlation with riskier assets.

The digital asset tends to move in tandem with high beta stocks, as Piper Sandler's Michael Kantrowitz tweeted.

Tweet showing bitcoin's tight correlation with the high-beta S&P 500 stocks. (Source: Piper Sandler Portfolio Strategy)

According to Nickel Digital Asset Management, bitcoin's correlation to risky investments will eventually weaken and the cryptocurrency's inflation hedging narrative will become dominant.

"Investors should not view Bitcoin as a safe haven asset at the current early stage of its adoption curve. Bitcoin clearly behaves as a risk-on asset and will remain such until wider institutional adoption takes place," Anatoly Crachilov, CEO and founding partner of Nickel Digital, said. "However, this does not undermine Bitcoin's ability to provide a long-term hedge against inflation term thanks to its immutable, finite supply and credible neutrality, i.e., independence from any single country's monetary policy."

Investors could continue to look at alternative assets like bitcoin for inflation-beating returns in the long run. The real or inflation-adjusted returns on traditional fixed-income investments are likely to remain negative despite rate hikes as elevated inflation is expected to rise further in the coming months. Together, Russia and Ukraine reportedly account for about 1/4 of the global trade of staple goods.

The U.S. 10-year real yield has declined to -0.93% – a 50 basis point collapse in two weeks, according to data provided by Reuters. That's perhaps powering gold higher at the moment.

Some observers are hopeful that a continued move higher in the yellow metal would eventually put a bid under bitcoin. Note that gold led the cryptocurrency higher in 2020. The yellow metal rose to fresh record highs in August 2020, and four months later, bitcoin followed suit.

"The higher gold goes, the more likely BTC starts getting that correlation going again," Split Capital's Zaheer Ebtikar tweeted. "But buying gold is actually the worst."

ICYMI

In case you missed it, here are the most recent episodes of "First Mover" on CoinDesk TV:

Crypto Industry Expands Effort to Help Ukrainians, Markets React to Near Disaster Following Nuclear Plant Shelling

"First Mover" hosts are joined by Alona Shevchenko, Ukraine DAO founder, and Kenny Choo, True Global Ventures founding partner, as crypto industry continues to raise funds to support Ukraine humanitarian efforts. Ananya Kumar of Atlantic Council weighs in on China's role in Russia sanctions. Plus, crypto market insights from Michele Schneider of MarketGauge Group.

Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.