Bitcoin's correlation to stocks has increased significantly since its peak in November 2021 and is currently trading more like a risky asset referred to as digital gold, analysts at Bank of America said on Wednesday.
According to Alkesh Shah, a principal analyst at the US banking giant, Bitcoin's rapidly expanding and in-line trading of stocks has removed the cryptocurrency's benefits to investors as a hedge against inflation.
Volatility, Shah said in a note from the bank, meant it was no longer traded alongside traditional hedge assets like gold.
As such, BofA analysts suggest that the flagship cryptocurrency is unlikely to gain any more traction, in its current state, as a store of value.
The insider quotes the Bank of America strategist as saying that the correlation between Bitcoin and gold has shrunk to near-zero levels. Meanwhile, the crypto asset has seen its correlation with the stock's spike to an all-time high during last month's market sell-off.
And with Bitcoin trading in line with the Nasdaq 100 and S&P 500, it is expected that digital gold will continue to lose its appeal as a 'safe haven asset'.
BofA thus expects the benchmark cryptocurrency to lead the rest of the digital asset market in remaining risky assets as long as volatility remains so high.
While analysts see Bitcoin's price volatility as a factor that might put investors in emerging markets at a standstill, they say the outlook may be different in emerging markets. The bank believes those in countries hit by uncontrolled inflation are likely to see BTC as an inflation hedge or a better store of value.
Bitcoin traded as high as near $45,000 on Wednesday to maintain some of its upward momentum after dropping more than 50% from last year's peak. The cryptocurrency is now down 35% from that peak, while gold remains around the $1,800 per ounce level.
Elsewhere, stocks have fluctuated massively this year, with the Nasdaq sinking into a correction in January amid rising inflation and a hawkish stance from the US Federal Reserve.