Bitcoin – DeFi Dream Dead, Just Another Risk Asset: Man Institute

Aaryamann Shrivastava
Updated: Feb 21, 2022, 18:36 UTC

The report from the Man Institute also highlights how over time, the nature of Bitcoin as an asset class changed and turned into the opposite.

Bitcoin – DeFi Dream Dead, Just Another Risk Asset: Man Institute

In this article:

Bitcoin brought in the future wave when it debuted back in 2009. Although it took the world about ten years to notice its actual value, today, cryptocurrencies and blockchain technology are becoming a part of some major financial institutions across the globe.

Still, at the same time losing the core values it was built upon.

What Is Bitcoin Today?

The Man Institute explained that the rising correlation of the king coin with pre-established investment institutions leads to the cryptocurrency turning into just another “rate sensitive risk asset.” 

Bitcoin was created to allow people to control their own money and finance without being dependent upon the traditional financial system of banks.

And while that same dream led to the birth of multiple other similar assets, the present market conditions seem to be killing that dream.

Equities are usually the riskiest assets as their value is tied to distant cash flows. And up until 2019, the correlation between Bitcoin and the stock exchange NASDAQ was negative.

However, since then, this correlation has been rising. Standing at 0.51 at its peak in August 2020, the correlation came down significantly around March 2021 but shot back up soon. Right now, Bitcoin shares a correlation of 0.46 with NASDAQ. 

Bitcoin and NASDAQ correlation | Source: Man Institute

Similarly, its correlation with Bitcoin-based exchange-traded funds has also risen. In a way, ETFs are also subjected to the same treatment as equities, and thus a high correlation with it indicates that Bitcoin is changing entirely as an asset class.

Bitcoin and ETF correlation | Source: Man Institute

On the rising correlation, the report stated:

“This mirrors bitcoin’s journey along the Gartner hype cycle: from being an underground tech phenomenon, the flagship cryptocurrency is now a mainstream way for both institutional and retail investors to speculate. In our view, it is therefore unsurprising that it is becoming increasingly correlated with the very riskiest assets – equities (sic).”

Adding to the same, the Man Institute iterated:

“…the higher the correlations get, the more bitcoin seems to be another manifestation of a crucial facet of investing over the past decade: there is too much capital chasing too little genuine economic growth.”

How Is Bitcoin Today?

After five straight days of red candles, Bitcoin today looked somewhat green at press time. In the last few days, the king coin’s value has trickled down by over $6k (13.86%) to trade at $38,757.

The bearish crossover visible on the MACD that occurred three days ago is only gaining more strength as the bearishness continues to rise. This is not a good sign for Bitcoin since even the Parabolic SAR signals a downtrend.

Bitcoin price is down by 13% in 5 days – Source: FXEMPIRE

If the indicators turn right, BTC could witness further price fall.

About the Author

Holding a Mass Media Degree has enabled me to better understand the nitty-gritty of being a journalist and writing about cryptocurrencies’ news and price movements, effects of market developments, and the butterfly effect of individual assets nurtured me into a better investor as well.

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