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Do mainstream investors see Bitcoin as a risky asset?
Dan Burgin
With “sell in May” sentiment on the rise, it’s important to understand how the traditional finance world views cryptocurrencies following the launch of the Bitcoin ETF
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Bitcoin and gold
Senior ETF analyst Eric Balchunas recently compared Bitcoin to “teenage gold.” The relationship between two assets can shed light on how Wall Street views cryptocurrencies in the current situation.
The increase in demand for Bitcoin has coincided with significant sales of gold ETFs, which recorded outflows of $7.7 billion over the same period, even as the price of gold reached an all-time high of $2,200 per troy ounce.
Source: FT.com
Data indicates that outflows from gold ETFs began in April 2022 and have continued steadily since then, without an acceleration triggered by the launch of spot Bitcoin ETFs in the US. Approximately $46 billion was withdrawn from gold ETFs during this period.
This divergence in ETF flows calls into question the idea that Bitcoin’s rise directly led to gold’s decline in investor interest, as trends in gold ETF outflows began before the significant rise of Bitcoin ETFs in the United States.
Source: InBlock
How venture capital firms invest in cryptocurrencies
Second Galaxy relationshipIn the first quarter of 2024, venture capitalists injected $2.49 billion into cryptocurrency and blockchain-focused companies across 603 deals, marking a 29% quarter-over-quarter increase in funding amount and a 68% increase in number of agreements.
Source: Galaxy
Traditionally, venture capital investments in the cryptocurrency sector have closely mirrored the price movements of Bitcoin. However, in the last year, this correlation has broken down. Despite the significant increase in the price of Bitcoin since January 2023, VC activity has not seen a commensurate increase.
Although the first quarter of 2024 saw a notable increase in the value of Bitcoin, the level of invested capital still remains below levels seen the last time Bitcoin surpassed $60,000.
This divergence can be attributed to a combination of industry-specific catalysts (such as Bitcoin ETFs, advances in areas such as restaging and modularity, and Bitcoin Layer 2 solutions) and broader macroeconomic factors such as interest rates.
BTC as a risk-free asset
Bitcoin is often seen as a high-risk investment due to its rapid growth and price volatility. However, second for Ark-Invest, the Bitcoin network actually embodies the characteristics of risk-free assets, promoting financial sovereignty, reducing counterparty risk and improving transparency.
As the first digital, independent, global, rules-based monetary system, Bitcoin’s decentralization mitigates systemic risks associated with traditional financial systems that rely on centralized intermediaries. It serves as a platform for transferring and storing Bitcoin, a rare digital monetary asset.
Source: Arca-Invest
Unlike traditional financial systems, which rely on centralized institutions, Bitcoin operates as a single institution governed by a global network of peers, promoting automated, public, and transparent rule enforcement.
Bitcoin’s volatility is paradoxically linked to its monetary policy, underlining its credibility as an independent monetary system. Unlike modern central banks, Bitcoin does not prioritize price stability; instead, it controls the growth of Bitcoin supply to prioritize the free flow of capital. This dynamic explains Bitcoin’s price volatility, which is driven by demand over its supply.
Source: Arca-Invest
Comparing the price of Bitcoin to the federal funds rate demonstrates its resilience in different economic and interest rate environments. Notably, the price of Bitcoin has appreciated significantly in both high and low interest rate regimes.
Over the past decade, Bitcoin has proven resilient during times of risk aversion, with its price consistently higher than during such events.
About the author
Dan Burgin
Dan is a news editor and writer with 12 years of experience in finance and emerging technologies, with a strong focus on cryptocurrencies. Covering a broad spectrum of topics, from fintech startups to artificial intelligence, he provides an in-depth overview of the current state of the cryptocurrency market, along with insights into its potential for future disruption.