Why Bitcoin is soaring in one of the scariest market environments in years

Investors have plenty to worry about in markets lately.
Bitcoin’s strong performance despite the worries is counterintuitive to some, says eToro analyst Callie Cox.
She explains why the cryptocurrency has rallied even as macro investors see it as a risky asset.

Happy Wednesday!

Crypto is volatile, illiquid, and risky — and yet in an environment rife with signs of fear, investors are flocking to it. Why?

Callie Cox, investment analyst at financial services company eToro, explained the situation to DL News.

Let’s dig into it.

Bitcoin as a store of value

The Israeli-Palestinian conflict — and the threat of escalation from the US and Iran — is keeping investors on their toes.

But Bitcoin is trading at about $34,400, 24% higher than when Hamas launched an attack on Israel on October 7. The top cryptocurrency has more than doubled this year.

Bitcoin has typically tracked the tech-heavy Nasdaq, rising and falling in line with investors’ risk sentiment. The Nasdaq is up 30% this year.

“Traditional-minded investors may see Bitcoin as a risky investment because they’re lining it up against stocks and bonds. And in that light, Bitcoin — and crypto — are especially risky,” Cox told DL News.

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And yet data from The Block Research tracking Bitcoin’s correlation to gold since October 12 shows the link between the two assets has strengthened.

Gold has moved 6% since then, while the Nasdaq and the S&P 500 have slipped about 5.6% and 3.8%, respectively, during that period.

“For the crypto-focused investor, Bitcoin could be seen as a stable store of value, as well as a hedge against the traditional financial system,” Cox said.

“Your view of Bitcoin depends on the narrative you ascribe to, and there’s a significant crowd on both sides,” she added.

Market fears aren’t manifesting the way they ordinarily do, said Cox.

“Gold is creeping back to record highs, the dollar is soaring versus other currencies, stocks are sliding,” she said. “Yields are surging,” as interest rates rise, she said.

“And the VIX isn’t reflecting fear like it used to.”

“I was surprised that Bitcoin got going,” billionaire investor Stanley Druckenmiller told Paul Tudor Jones last week at the Robin Hood Investors Conference. “It’s clear that the young people look at it as a store of value because it’s a lot easier to do stuff with” than gold.

Bitcoin rallied “directly” after President Joe Biden made the case that the US should provide wartime aid to both Israel and Ukraine, BitMEX co-founder Arthur Hayes noted in a blog post on October 25.

“Gold, and most importantly, Bitcoin, will begin rising on true fears of global war-time inflation,” Hayes wrote.

“Bitcoin could be in an interesting position,” Cox said. “It’s the benefactor of yield fears within crypto, and it seems to be at the helm of industry momentum.”

Crypto market movers

Bitcoin remained flat over the last 24 hours and is trading for $34,400.
Ethereum is down 0.2% in the same period of time and trades at $1,796.
Solana is up 8%, and Chainlink is down 5.5%.

What we’re reading

Tom Carreras is a Markets Correspondent at DL News. Got a tip? Reach out at tcarreras@dlnews.com