- Bitcoin’s correlation with tech stocks represented by the Nasdaq 100 is at 0.60, it’s highest level in recent months.
- While its correlation with traditional inflation hedges such as gold and commodities has turned negative.
Even as some investors tout Bitcoin’s role as a hedge against inflation, its most recent performance belies such assertions.
If nothing else, Bitcoin’s correlation with tech stocks represented by the Nasdaq 100 is at 0.60, it’s highest level in recent months, while its correlation with traditional inflation hedges such as gold and commodities has turned negative.
A 50-day correlation coefficient for Bitcoin and gold now stands at -0.4, the lowest since 2018, while it is also negatively correlated against the Bloomberg Commodity Spot Index – both which are expected to do well in inflationary times.
Correlation of 1 means that two assets move in lockstep, whereas a correlation of -1, means that they move perfectly in opposite directions.
The past weekend saw Bitcoin dip below US$40,000 again before since recovering alongside tech stocks this week.
And while demand for portfolio buffers amidst soaring inflation has seen commodities race ahead in performance, Bitcoin has moved in the opposite direction, undermining its value as an inflation hedge, at least in the short-term.
But looking at immediate correlations in short timeframes can also be misleading.
Inflation hedges are as much a function of expectations as they are a function of actual performance.
Even gold, which has long been touted as a hedge against inflation, has had a patchy track record when it’s come to serving the role as a hedge against rising prices.
Historically, gold’s performance as an inflation hedge has only been valid over periods spanning many times beyond the typical investment horizon, whereas stocks have ironically been show to consistently outperform inflation.
Therein lies the difficulty with judging an asset’s efficacy to hedge against inflation by looking at momentary and instantaneous data.
Looking through the data, that Bitcoin is a deflationary asset and has growing institutional acceptance and interest may put it in good stead over the longer-term quite apart from any assertions that it is a functional inflation hedge. 
