Crypto Unlocked: In the bleak midwinter - Page 24

Bitcoin ' s correlation to equities has spiked as investors seek a safe haven
Chapter 3 : Crypto investing
behaviour of retail investors .
Despite Vigna and Casey ' s cynical remarks about bitcoin ' s early entourage , their jibe has stood the test of time . Researchers Raphael Auer and David Tercero- Lucas found the post-COVID-19 batch of retail investors are indeed young , tech-savvy and risk-tolerant – not dissimilar to the geeks and digital gold diggers who pioneered the crypto-craze . However , the authors do believe that a new retail investor has emerged , one who does not believe crypto to be an alternative to fiat but purely a speculative asset . They conclude that this is due to the maturation of the infrastructure surrounding the crypto industry .
“ Think about it like Nokia in the 1990s ,” Chung continued . “ Bad signal , clunky design and most people did not understand it . As the infrastructure around Nokia improved more people had one and it lost its novelty .”
Echoing his thoughts , Luciana Somoza and Antione Didisheim at the Swiss Finance Institute , suggested the more active retail investors trade across the crypto and traditional markets , the stronger correlations become . Interestingly , correlations with tech stocks were the highest .
In particular , they note these new investors treat bitcoin as a speculative tech stock , with the correlation between cross-market trading the highest between

Carlos crypto and the Nasdaq . They find the inverse to be true . When crossasset trading is low , correlations remain low or negative .
This suggests correlations on the retail side are driven by individuals who see bitcoin as an asset that can be traded likefor-like with traditional stocks .
Testing an ‘ old hypothesis ’
As infrastructure improvements and mainstream acceptance drives retail engagement , however , the story looks a little different where institutional investors are concerned .
In a working paper for the Bank for International Settlements , Auer , Farag , Lewrick , Orazem and Zoss find that one reason for the uptick in investment is two-fold : institutional investors are searching for yield in a low-return environment and they believe bitcoin could be a hedge against inflation .
Between July and August , BlackRock , Fidelity , Schroders and abrdn have all sought to enter the crypto space . BlackRock , the world ' s largest asset manager , is a particularly noteworthy development .
Larry Fink , founder and CEO BlackRock , has been an ardent critic of bitcoin and crypto in general calling bitcoin an “ index of money laundering ” in 2017 . However , on 5 August , BlackRock partnered with crypto exchange Coinbase to allow
Bitcoin ' s correlation to equities has spiked as investors seek a safe haven
Gonzalez , research analyst at 21Shares
Chart 5 : Cross-market trading volume bitcoin and S & P 500
its clients to access bitcoin via its Aladdin platform .
The reason for this decision , according to BlackRock , was “ institutional clients are increasingly interested in the digital asset market ”.
" It is not BlackRock itself that is interesting , it is what it represents . Nobody offers crypto unless there is an institutional demand . The question is why now ? Maybe we are seeing institutional investors test an old hypothesis . Can bitcoin be a hedge against inflation ,” Chung suggested .
If bitcoin is seen as a diversified asset and has the potential to be a hedge against inflation , then it is of little surprise that institutional investors are demanding bitcoin exposure from asset managers and banks .
In April , the IMF warned that “ unprecedented ” levels of government borrowing during the pandemic posed “ risks ” to economies across the globe .