On the Correlation Between Big Tech and Bitcoin: True or False?

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Markets are extremely complex, but we all try to find some kind of order in the madness. The world is not entirely coherent, but we group and categorize in search of meaning. The definition game isn’t always precise, but I’m afraid it’s necessary. What is Bitcoin? Currency, commodities, technology stocks or something else? Also, is there some sort of correlation with other assets? The gold maybe? Is there a correlation between Bitcoin and Big Tech?

One could say that Bitcoin is a new type of asset that is challenging the old categories. In all words, it’s none of the above. However, it shares some features present in other instruments. If you’re a metaphor lover, I’d tell you that Bitcoin is a platypus. It’s not a currency in the traditional sense. Because modern currencies are state projects. Its provision is essentially discretionary and the responsibility of a central bank. Furthermore, their acceptance is not voluntary. It is an adjustment by government decree.

On the Correlation Between Big Tech and Bitcoin: True or False?
On the Correlation Between Big Tech and Bitcoin: True or False?

Bitcoin, on the other hand, is a pre-determined citizen project with a finite supply. It’s a kind of California-style countercultural plutocracy created by liberators and anarcho-capitalists. It is not a commodity because it has no use value. And of course it’s not a legal entity with underlying assets. In fact, it looks very much like a collector’s item. Bitcoin is really just a code. A human abstraction that basically functions as a social organizer. A log

What is Bitcoin? A digital code representing an exchange fee. A non-governmental “wealth transfer” mechanism. However, it has evolved. Let’s say it has become very popular. Especially among younger people due to its digital, rebellious, eclectic and avant-garde character. Also because of its great speculative potential. So we have a Frankenstein monster made up of parts from Silicon Valley, Wall Street and the Liberation Party. But we can go further. Bitcoin has also found a place in the “grey” economy: casinos, the dark web, the parallel forex market, the gig economy, etc. Its popularity in countries like Russia, China, Venezuela and Argentina is no accident.

In many ways, our platypus shares some similarities with gold. However, if we go into detail, these are very different markets. For sure. Gold is scarce. For sure. The bitcoin community has inherited their official narrative of the gold bugs. True, both are assets that appeal to libertarians and conservatives alike. However, the gold market is a very old, well established and fairly regulated market. Requires physical installations. And it is part of the macroeconomic strategy of many countries. Why is there so much gold in London? Gold is used by countries for financing. Which implies that the stability of the price of gold is important to its participants

The bitcoin market is completely different. It’s a fragmented market with little liquidity, busy custodial services and lots of regulatory ambiguity. Obviously this is an emerging market. Still heavily dominated by retailers. It’s a highly speculative, wildly volatile market that’s very enticing to venture capitalists, hedge funds, family offices, tech companies, Robinhood traders, and ambitious youngsters. It’s Wall Street on steroids.

Bitcoin is obviously a risky asset. That implies that is an honorary member of the “growth” industry, for its behavior and for the composition of its investors. In other words, it is a “risky” investment that is very sensitive to macroeconomic factors. In practice, this means a positive correlation with Big Tech. Of course we are not talking about an absolute correlation. One could even argue that in many ways Bitcoin is an uncorrelated asset. In general, however, it is already becoming apparent that such a connection exists.

Bitcoin is definitely not a conservative asset. Many of its investors profess political conservatism. And because of this ideological bias, Bitcoin is portrayed in the narrative as “digital gold.” The metaphor at the theoretical level is not entirely out of place. But still, Bitcoin does not behave like gold in our portfolio. It’s more Tesla than gold in that regard.

is mIt is very important to be clear here as any confusion could be very costly. Ideology cannot be mixed with our financial strategy. The conservative narrative is essentially pessimistic. The world is believed to be on the brink of economic collapse due to excessive statism. Consequently, the citizen has to flee into a hard currency. According to this view, Bitcoin is a hard currency. So the most sensible option.

The problem is that bitcoin doesn’t behave like a “hard currency”. It behaves like a “speculative asset”. That means its price is largely dependent on loose monetary policy. As we can see, the conservative narrative used to guide our investments can end in disaster. Personally, I know several people who bought bitcoin near its all-time high, motivated by the latest inflation reports in the United States. They viewed Bitcoin as a hard currency, biased by a politicized narrative, rather than weighting the asset based on its actual performance.

Here’s the problem with ideologies. Idealization creates a very blinding emotional charge. That means everything is good and nothing is bad. For example, ideology makes us extremely sensitive to words. The expression “safe haven” sounds much better than the expression “speculative investment”. Saying that Bitcoin is a “speculative asset” sets off alarms among the most sensitive, thereby provoking an emotional defense. “The dollar is the real speculative commodity†. “Bitcoin is the future, progressive Keynesian!†Calm down folks. There are no attacks here.

Let’s forget narratives for a second. And let’s think of a world without counterparties. In other words, there are no pejorative words. Let’s analyze the evidence and nothing more. The price of Bitcoin is extremely volatile. It’s that simple. In the graphics, It is clear that investors buy more in a “risk-on” situation and sell more in a “risk-off” situation. In this sense, Bitcoin’s behavior is quite similar to Big Tech’s behavior. Nothing offensive. They are the facts as they are. It’s not politics. It’s a simple description. If you have eyes, open them.
TO

This is an opinion piece and Cointelegraph does not necessarily endorse what is said here by the author.

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