Why Bitcoin’s tandem act with equities won’t continue

World currencies

Bitcoin has been trading in line with other assets, such as equities, lately, but that’s likely to be only temporary, Capital Economics said in a note last week.

“While investor sentiment may be driving both Bitcoin and other asset prices to some extent, the stronger correlation between the two is probably primarily coincidental,” the note said. “In other words, the factors driving Bitcoin prices are still rather different to those driving the prices of other assets.”

It noted that stock markets have been falling on worries over protectionism and slowing global economic growth, but Bitcoin’s falls, while appearing correlated, were on specific factors, such as Google banning all cryptocurrency advertisements, various regulatory crackdowns and rumors of a crypto-exchange being hacked.

“While we expect both Bitcoin and equity prices to fall further in the coming months, again, this will be for different reasons,” it said, noting that equity markets are likely to fall as investors realize rising U.S. interest rates will slow economic growth. “But the main factor driving down the price of Bitcoin is likely to be a realisation that it is simply not a credible long-run alternative to conventional currencies.”

Indeed, despite signs that cryptocurrencies are being accepted as an asset class, such as the recent beginning of Bitcoin derivatives trading, “we still think that Bitcoin is essentially worthless, meaning that it is likely to fare much worse than other assets in the coming months.”

Bitcoin was trading at US$6,862.01 as of Saturday evening SGT, but that’s down from levels over US$19,000 in December, according to data from Coinbase.