The argument that BTC could serve as a store of value during periods of high inflationary pressures is being undermined by the negative correlation between Bitcoin and gold, as evidenced by the value of PAX Gold, a digital token that enables investors to invest in the precious metal via the blockchain.
The graph above shows that the weekly correlation between Bitcoin and PAXG has been negative since February of this year and is presently at -0.35. This indicates that there is a negative correlation between the performance of Bitcoin and that of gold.
The connection spiked earlier this month at -0.4, showing that when the price of PAXG increased and vice versa, the price of Bitcoin decreased noticeably.
In actuality, gold is seen as a safe-haven asset during periods of declining fiat currency purchasing power. If Bitcoin (BTC) were to be regarded in the same manner, then there would need to be a positive and rather significant correlation between the two.
An negative correlation indicates that Bitcoin is not operating as a store of value, as many proponents of the cryptocurrency asset have claimed in the past, but rather more like a normal risky asset like equities, i.e. tech stocks.
As fuel prices and the nation’s general cost of living have continued to rise, the Bureau of Labor Statistics in the United States announced an 8.5 percent increase in the country’s Consumer Price Index (CPI) last month.
The hypothesis that investors will use Bitcoin as a store of value to safeguard their net worth against a drop in the purchase power of the US dollar is being tested in this situation, but it appears to have failed so far.
What makes Bitcoin a possible store of value
Crypto aficionados have argued that Bitcoin is the digital equivalent of gold since it shares many traits with the precious metal that make it a store of value and some additional advantageous features.
First off, the blockchain, the network that underpins Bitcoin, is built to endure for millennia. Additionally, a newly created Bitcoin cannot be deleted because it is recorded in an unchangeable ledger.
Additionally, trading Bitcoin is simple through a crypto exchange or even a peer-to-peer transaction. In addition, storage costs are lower than for gold.
Additionally, Bitcoin can readily split up into smaller pieces, or “satoshis,” and each BTC token is identical to the other. This makes it more desirable as a medium of exchange in routine business dealings.
The 21 million coin cap on BTC’s lifetime supply makes it a scarce asset with a higher value as a collectible and one-of-a-kind item.
In conclusion, Bitcoin actually exhibits the traits of a store of value. The fact that investors think so, however, is a very different matter, and the digital asset has not yet reached that point, as evidenced by its response to recent and earlier risk-off market movements.
Noelle Acheson from Genesis Global said to Coindesk this morning that calling bitcoin a risk asset and a failed safe haven based on price performance is wrong since it only addresses a portion of the present state of the market.
“Price is a vital indicator of market sentiment, but it is primarily driven by short-term traders and does not reflect the growing understanding of the value of BTC as a seizure-resistant store of value and significant HODLing behavior we witness through on-chain data,” he continued.
