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Bitcoin Drops, Showing Little Sign of Hedge Against Volatility

'To us [Bitcoin], it is still by and large a risk asset,' Ross Mayfield, investment strategy analyst at Baird, told Bloomberg.
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Bitcoin plunged 8% Friday, the same day that the S&P 500 index slid 2.3%, suggesting the digital currency may not be the hedge against financial market volatility that its backers claim.

The hedge today was bonds, similar to much of market history. The 10-year Treasury yield slid 17 basis points to 1.48%.

Bitcoin recently traded at $54,263 and dipped as low as $53,625 earlier Friday. It has soared from its 2009 inception, but with substantial volatility along the way.

For example, it plunged 53% between April 12 and July 19 this year. The world’s biggest cryptocurrency has jumped 85% year to date.

Stocks and bitcoin tumbled Friday as a new Covid variant courses through the world.

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“To us [Bitcoin], it is still by and large a risk asset,” Ross Mayfield, investment strategy analyst at Baird, told Bloomberg. “When things get kind of scary, there are going to be sellers.”

Bitcoin advocates have been clamoring for some time that the digital asset represents a hedge against inflation too. But obviously that wasn’t the case Friday.

The traditional hedge against financial and economic volatility, gold, held up a bit better than Bitcoin this day, firming 0.7% to $1,788.10.

“I think the role that Bitcoin will eventually play is still uncertain,” Mayfield said. “When things really look ugly, the traditional safe havens, … like gold and Treasuries, will rise to the top.”

What’s clear now is that Bitcoin is a speculative vehicle. Whether it turns into something more than that is anyone’s guess. Its unstable value has kept it from being used much as payment for legitimate goods and services.