Bitcoin dips below US$40,000 as inflation data boost risk-off mood

Bitcoin dropped back below US$40,000 as digital currencies fell with stocks amid high inflation data and continued geopolitical uncertainty.

Bitcoin dropped back below US$40,000, erasing nearly all gains sparked by optimism about U.S. President Joe Biden’s executive order on crypto, as digital currencies fell with stocks Thursday amid high inflation data and continued geopolitical uncertainty.

The largest cryptocurrency declined as much as 7.9 per cent to US$38,582 on Thursday, falling for the first time in three days. Ether fell as much as 5.7 per cent to US$2,553. Most of the top cryptocurrencies were down at least slightly in the 24 hours prior to 9:30 a.m. New York time, according to pricing from CoinGecko.

U.S. stocks and other risk-on assets are under pressure after the nation’s consumer price index jumped to a 40-year high and as the war in Ukraine continues to weigh on commodities. In recent years, Bitcoin has demonstrated a tendency to follow moves in the stock market. A 50-day correlation coefficient between the token and S&P 500 -- one of the most watched U.S. market gauges -- stands at 0.5, with a score of 1 equating to lockstep moves.

In terms of risky assets, digital currencies fall on the far-end of the spectrum, according to Callie Cox, U.S. investment analyst at eToro. Yet, in a survey of 100 institutional investors and wealth managers, 73 per cent saw Bitcoin as a viable hedge against inflation, according to research commissioned by London-based Nickel Digital Asset Management.

“Based on the way that crypto works, naturally, it could be a good inflation hedge,” Cox said by phone. “But with all the speculation wrapped up in it, and all the money that you’re seeing with it being an emerging market and taking steps to being a mature market, it may not be acting like an inflation hedge right now.”