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The fall of Bitcoin is due to the growing interest of institutional investors in this asset, according to Reuters. As evidence, journalists cite statistics on the correlation of BTC with the S&P500 broad stock market index from Refinitiv, as well as data on the increase in investments in crypto fund units.
The correlation curve shows a sharp strengthening in 2020 of the relationship between Bitcoin and the dynamics of securities.
Institutional investors did not accidentally choose this year of the start of the coronavirus epidemic, which led to an unprecedented pumping of the world economy with “cheap money”. The consequences of the reduction of discount rates by the Central Banks to zero were clear to any trader with an economic education.
Loose monetary policy led to a surge in inflation and Bitcoin was considered one of the hedging instruments, along with traditional instruments: silver, gold, bonds (bonds). Statistics comparing the growth of the consumer price index (CPI) with the profitability of Bitcoin from Refinitiv shows that the cryptocurrency performed a protective function better than other assets only until the beginning of 2021.
Bitcoin quotes began to fall as soon as the Central Banks switched to the policy of curtailing monetary measures. This behavior is similar to stock market shares. Institutional investors who have gained BTC are now dumping cryptocurrency along with risky assets, following the rule of their sale before the US Fed rate increases.
For 11 years, Bitcoin did not respond to this stimulus. The paradigm shift could see the cryptocurrency fall into an “inflation trap” that eliminates the possibility of a return to the highs until US consumer price growth returns to the 2% level.
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