Man Group Analysts Say Crypto Is Just a Rate-Sensitive Risk Asset

The rising correlation of bitcoin BTC$92,636.99 with both the Nasdaq stock index and the ARK Innovation exchange-traded fund (ETF) suggests the cryptocurrency has become yet another risk asset, analysts from the hedge fund Man Group said.

In a report entitled “Views From the Floor – Is Crypto Just a Rate-Sensitive Risk Asset?” the analysts noted that rising inflation and the prospect of higher interest rates have “eroded the theoretical value of long-dated cashflows,” resulting in underperformance for both the Nasdaq and the ARK Innovation ETF.

Bitcoin has now joined them, the money manager said, with a correlation of 0.44 to the Nasdaq index and 0.43 to the ARK ETF.

This growing correlation may be evidence of a change in the nature of bitcoin as an asset class, Man Group said, noting that before 2019 the digital asset went through periods of negative correlation with both measures. Since then, correlations to “risky tech” have turned positive, it added.

“This mirror’s bitcoin’s own journey along the Gartner hype cycle: From being an underground tech phenomenon, the flagship cryptocurrency is now a mainstream way for both institutional and real investors to speculate,” the report said.

It’s not surprising that bitcoin is becoming more correlated with risky assets such as equities, whose value is tied to distant future cashflows, the hedge fund said, adding that the higher the correlations get “the more bitcoin seems to be another manifestation of a crucial facet of investing over the past decade: there is too much capital chasing too little genuine economic growth.”

Bitcoin was trading around $37,500 as of publication time.

Read more: BofA Says Bitcoin Trades More as RIsk Asset, Less as Inflation Hedge