How much lower BTC prices? Bitcoin outperforms stocks and gold for 3rd year in a row

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Bitcoin (BTC) may be down more than 30% from its record high of $ 69,000, but it has emerged as one of the best performing financial assets in 2021. BTC has beaten the US benchmark , the S&P 500 and gold.

Arcane Research noted in its new report that Bitcoin’s year-to-date performance (YTD) was almost 73%. In comparison, the S&P 500 index jumped 28% and gold fell 7% over the same period, marking Bitcoin’s third year of outperformance.

Bitcoin against S&P 500 against gold in 2021. Source: Arcane Research, TradingView

At the heart of Bitcoin’s extremely bullish performance was higher inflation. The US Consumer Price Index (CPI) recorded its largest 12-month increase in four decades in November.

“Most economists did not see the high inflation coming, as evidenced by consumer inflation expectations one year away,” the Arcane report read, adding:

With its 73% gain in the year 2021 highly inflationary, Bitcoin has proven to be an excellent hedge against inflation. Inflation 2021: Real CPI vs Expected CPI. Source: BLS, New York Holdings of FedBitcoin increased among institutional investment vehicles

Accommodative monetary policies and a lingering fear of higher inflation have also prompted major financial firms to launch crypto-enabled investment vehicles for their wealthy clients in 2021.

Arcane reported an influx of 140,000 BTC (~ $ 6.56 billion) into Bitcoin spot and futures exchange traded funds (ETFs) and physically backed exchange traded products (ETP) this year.

Bitcoin exchange-traded fund holdings. Source: ByteTree, Arcane Research

This prompted more Bitcoin units to be absorbed into investment vehicles, pointing to greater institutional demand for the cryptocurrency.

In contrast, gold-backed ETFs posted an outflow of $ 8.8 billion in 2021, according to the World Gold Council report released in December.

Global Gold-Backed ETF Flows. Source: World Gold Council Volatility Behind Superior Performance?

Nonetheless, Bitcoin’s relatively superior performance in 2021 included periods of high volatility.

Many analysts believe that extreme price swings prevent Bitcoin from becoming an ideal hedge against inflation. This includes Leonard Kostovetsky, professor of finance at Boston College, who recalled in his blog post that there had been 13 days in 2021 when the price of BTC moved more than 10% in one direction. Extracts:

“It seems strange to think that a person who worries about holding dollars because they’ve lost 7% of their value in the last year would be comfortable holding Bitcoin which could (and often lose ) so much value in one day. “

Arcane also acknowledged that Bitcoin was more volatile than the S&P 500 in 2021, noting that the cryptocurrency “behaves like a risky asset” by simply amplifying larger stock movements.

The researcher cited VIX – an option-based measure of volatility expectation from the S&P 500 Index – to illustrate the relationship between Bitcoin and the stock markets. He noted that the price of BTC has fallen sharply whenever VIX readings have risen lately, pointing out that institutional traders view Bitcoin as a risky asset.

Bitcoin against VIX. Source: Arcane Research, TradingView

As a result, Bitcoin’s downside potential following a market correction has also become higher. Arcane also noted that a bearish 2022 for the S&P 500 could end up wiping out a large chunk of Bitcoin’s gains.

“Therefore, be aware of the headwinds in the stock market over the next year and their possible implications for the short-term price path of bitcoin,” he added.

Related: Arcane Research Releases Crypto Predictions For 2022

But hedge fund manager Chris Brown went a long way in predicting a total Bitcoin disaster in 2022. The managing member of Aristides Capital said cryptocurrencies could face massive sell-offs ahead as the U.S. Federal Reserve Ends its $ 120 billion-per-month asset purchase program, followed by three rate hikes next year.

Graph of weekly BTC / USD prices against the Federal Reserve’s balance sheet. Source: TradingView

“If the Fed really does raise rates enough to make money a lot less loose, or if the markets think they will, you’ll see some areas of speculation come to a screeching halt,” Brown said, adding:

The best example of such asset speculation is cryptocurrency; here is $ 2.64 trillion of “wealth” that is not backed by anything and generating no cash flow.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move comes with risk, you should do your own research before making a decision.

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