What Is Bitcoin Meant to Hedge?

Uh
oh,
it’s
starting
again:
People
are
again
debating
whether
bitcoin

(BTC)
is
actually
a
hedge.

The
conversations
began
on
Saturday,
after
the
cryptocurrency
tanked
nearly
10%
—
from
around
$70,000
to
below
$62,000
—
following
Iran’s
failed
missile
attack
on
Gaza.
The
move
inspired
a
few
columns
on
Monday,
including
insightful
ones
from
Fortune’s
Jeff
John
Roberts,
which
put
it
in
context
of
gold’s
17%
rally,
and

Blockwork’s
Casey
Wagner,
who
looked
at
how
gas
prices
tend
to
move
during
crises
in
the
Middle
East.

Read
more
from
CoinDesk’s



“Future
of
Bitcoin”
package.


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is
an
excerpt
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news
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Yes,
it’s
true
that
there
were
more
buyers
than
sellers
of
oil
and
gold
following
the
attack
and
more
sellers
than
buyers
of
bitcoin
—
thus
the
former
rose
in
value
while
the
later
dropped.
But
I’ve
always
been
of
the
view
that
intraday
price
movements
for
an
asset
as
volatile
as
bitcoin
say
very
little.
The
bad
news
is:
gold
is
continuing
to
rise
(like
it
did
after
the

collapse
of
Lehman
Brothers),
while
after
a
little
pop
on
Sunday,
bitcoin
has
been
sagging
lower
and
lower
this
week
into
the
low
$60K
range.

While
the
looming
threat
of
WWIII
may
be
putting
a
damper
on
bitcoin,
it’s
likely
inklings
emanating
out
from
the
Federal
Reserve
that
it
may
hold
interest
rates
higher
for
longer
than
anticipated
because
the
economy
is
doing
well
that

the
market
is
responding
to.
Still,
to
raise
the
question
of
whether
bitcoin
is

really
a
hedge
—
when
in
recent
years
it
has
clearly
been
behaving
more
and
more

like
a
tech
stock
—
seems
like
the
wrong
thing
to
ask.

Bitcoin
was
largely
uncorrelated
with
the
S&P
500
before
the
pandemic,
so
clearly
it
can
act
as
a
countercyclical
asset.
The
question
is:
What
changed
from
then
to
now?
Also,
what
exactly
is
bitcoin
meant
to
hedge?
Stocks?
Inflation?
U.S.
Treasuries?
Political
turmoil?
Is
bitcoin
meant
to
be
an
economic
safe
haven
for
all
occasions?

There
are
likely
a
number
of
factors
at
play,
including
the
increasing
amount
of
bitcoin
in
circulation,
number
of
holders
and
whales.
But
in
some
sense,
the
answer
is
clear
enough,
bitcoin
is
institutionalized.
As

Barron’s
reported
around
the
time
of
the
launch
of
spot
bitcoin
ETFs
in
January:

“Bitcoin’s
volatility
has
still
steadily
declined
since
its
launch
more
than
a
decade
ago.
Volatility
—
as
measured
by
the
100-day
average
of
daily
price
swings
in
percentage
points
—
hasn’t
exceeded
4.5%
since
the
introduction
of
bitcoin
futures,
which
track
the
price
of
the
spot
token,
according
to
Bauer.
Since
the
2021
launch
of
the

ProShares
Bitcoin
Strategy
ETF
—
a
bitcoin
futures
fund
—
that
metric
hasn’t
exceeded
3.5%.
Over
the
past
year,
volatility
has
stayed
below
2.6%.”

Now,
volatility
isn’t
everything
(and
bitcoin
remains
quite
a
bit
more
volatile
than
traditional
equities),
but
it
is
a
defining
feature
of
the
asset
—
at
least
as
it
was
known
to
be.
Did
people
think
bitcoin
would
remain
volatile
forever?
Austin
Campbell,
assistant
professor
at
Columbia
Business
School,

told
CoinDesk
recently,
“Any
market
growing
from
new
to
mainstream
sees
volatility
due
to
small
idiosyncratic
events
decrease
as
liquidity
and
scale
increase.”

See
also:



What
Bitcoiners
Are
Saying
About
the
Upcoming
Bitcoin
Halving

The
release
of
spot
bitcoin
ETFs,
some
of
which
have
been
the
fastest
growing
financial
products
this
year,
may
accelerate
this
trend.
As
the
barriers
to
entry
drop,
and
bitcoin
becomes
more
mainstream,
bitcoin’s
correlation
with
stocks
could
tighten.
The
same
people
and
fund
managers
now
buying
bitcoin,
buy
the
S&P
—
the
investor
psychologies
are
merging.

In
fact,
the
whole
theory
of
“hyperbitcoinization”
rests
on
the
idea
that
as
bitcoin
adoption
increases,
its
price
volatility
would
dissipate
so
it
could
actually
be
a
viable
means
of
exchange.
The
trouble
is
this
idea
was
predicated
on
the
idea
that
as
a
widespread,
circular
bitcoin
economy
grew,
the
fiat
system
would
plummet.
Said
differently,
bitcoin
was
supposed
to
become
less
volatile
and
more
uncorrelated.
That
was
bitcoin’s
hedge.

This
may
stem
from
one
of
the
foundational
myths
of
bitcoin,
that
it
is
“digital
gold.”
It’s
a
flawed
metaphor
though;
good
in
the
sense
that
an
association
with
gold
signaled
that
BTC
could
have
value
but
bad
in
setting
up
the
wrong
expectations
at
a
time
before
anyone
really
knew
how
bitcoin
would
behave.

That
digital
gold
became
the
go-to
description
is
likely
why
we
have
a
mishmash
of
ideas
about
bitcoin
today;
it’s
a
hedge,
a
store-of-value,
a
means
of
payment,
a
beta
trade,
a
bet
against
fiat
and,
increasingly,
a
development
platform.
Everyone
wants
bitcoin
to
be
everything
all
at
once
when
in
reality,
over
the
past
decade
and
half,
it’s
basically
done
just
one
thing
really
well:
sopping
up
excess
liquidity.

To
a
large
degree,
we
have
no
idea
how
bitcoin
will
perform
if
things
hit
the
fan.
As
S&P
analysts
wrote
in
a
2023
report
about
macroeconomic
impacts
on
crypto:
“Unprecedented
levels
of
monetary
easing
by
central
banks
across
the
world
since
2008/09
have
increased
money
supply
to
record
levels,”
suggesting
bitcoin
grew
because
the
money
supply
did.

So
maybe
bitcoin
will
follow
the
pack
for
now,
growing
when
the
overall
economy
does,
dropping
when
it
drops.
But
the
hedge
bitcoiners
are
actually
waiting
for
is
more
like
a
pop.