Many investors doubt Bitcoin’s capacity to serve as a hedge against economic unrest, much as gold has been perceived for decades in light of the correlation between gold’s strength and Bitcoin’s weakness.
It is crucial to remember that both institutional and retail traders see Bitcoin as a risk-on asset in its current state. This means that high-risk assets like Bitcoin typically see sell-offs when market uncertainty arises, whether it be from geopolitical, financial or macroeconomic sources.
On the other hand, as investors look for refuge from the volatility demand for gold, the classic safe-haven asset is rising. Nevertheless, it might be too soon to write off Bitcoin completely as a potential store of value. The underlying characteristics of Bitcoin, such as its decentralized structure and scarcity, make it comparable to gold as a possible hedge.
Yet its market perception is still evolving, and for now it remains closely tied to the risk-on environment. Large participants appear to be building up their holdings in Bitcoin, perhaps in anticipation of a time when it will be viewed as a more stable asset based on ETF flows and institutional activity surrounding the cryptocurrency. Right now, the perception of their respective markets determines how gold and Bitcoin behave.
Although Bitcoin is still in its infancy as an asset class, gold has long been recognized as a store of value. Bitcoin is probably going to act like other risky assets until it reaches a more developed market status.
However, Bitcoin still has the potential to turn into digital gold, especially as more institutional investors become interested in it. The current drop is more reflective of short-term market sentiment rather than a fundamental flaw in Bitcoin’s long-term prospects.
This article was originally published on U.Today
Source: Cryptocurrency - investing.com
