Talk about kicking bitcoin when it’s been down. Capital Economics, a London-based macroeconomic research firm, has warned that there’s no light at the end of the tunnel for bitcoin investors. They said the No. 1 cryptocurrency will underperform stocks and bonds going forward because it’s “essentially worthless,” according to an updated published by Capital Economics and obtained by CCN.
According to the update, while bitcoin was uncorrelated to other asset prices at year-end 2017 during the rally, ever since the bubble has begun to “deflate” in the new year it’s more closely correlated with other risk assets such as stocks.
What’s pressuring the BTC price, according to Capital Economics, is “likely to be a realization that it is simply not a credible long-run alternative to conventional currencies.” The problem with the analysis is that bitcoin is more than a payment method, and even those in the industry who don’t expect bitcoin to replace fiat money are long bitcoin.
Like the bitcoin price, stocks have been under pressure of late amid trade tensions between the United States and China. Capital Economics says bitcoin has been correlated to the S&P 500 index, which is a broad representation of the stock market. But they add that the correlation is likely “coincidental,” adding that separate factors have been driving each asset class.
“Bitcoin’s correlation with equity prices has strengthened recently, but we think that this will be just temporary. We still think that bitcoin is essentially worthless, meaning that it is likely to fare much worse than other assets in the coming months,” according to Capital Economics cited in CNBC.
Meanwhile, Fundstrat’s Tom Lee says no such correlation exists between bitcoin and stocks.
Capital Economics does point out that bitcoin emerged from the dreaded death cross “unscathed,” though they add that they don’t put too much stock in this:
“What matters is Bitcoin’s fundamentals. And nothing has happened recently to suggest that it has any more of a future than when we looked at it in detail a few months ago.” — Capital Economics
No doubt it was a dismal first quarter for the bitcoin price, with the leading cryptocurrency having shaved $119 billion-plus from its market capitalization. But Fundstrat analysts point out that April is historically a strong month for the bitcoin price. Regulatory overhang has also been weighing on cryptocurrencies, and once that clears up traders are likely to breathe a sigh of relief.
Adding fuel to the fire was bond king Jeffrey Gundlach, who is at the helm at DoubleLine Capital. In December, he advised investors to short bitcoin just before the BTC price rallied to nearly $20,000. Now he’s pointing to the bitcoin price trading at its low point for the year, telling CNBC:
“There is a connection between bitcoin and the basic social mood … and the speculative animal spirits.”
He described how the drop in the bitcoin price was foreshadowing volatility in the stock market, stating: “Bitcoin very clearly leads risk assets.”
Last modified: May 20, 2020 8:53 PM UTC