Bitcoin (BTC) has declined more than 30% from its all-time high of $69,000, yet it has surfaced as one of the finest financial assets in 2021. Bitcoin has outperformed the S&P 500 and gold as a reference index in the United States.
According to Arcane Research’s recent research, Bitcoin’s year-to-date success is approximately 73 percent. In contrast, the S&P 500 index rose 28 percent during a similar time, while gold fell 7 percent, marking the third year in a row that Bitcoin outpaced the two.
Higher inflation was at the heart of Bitcoin’s extraordinarily optimistic run. This November, the consumer price index (CPI) in the United States saw its highest 12-month rise in four decades.
Bitcoin holdings amongst institutional investment vehicles have increased
Loose fiscal measures, as well as persistent concern of increased inflation, pushed conventional financial institutions to introduce cryptocurrency-enabled investment vehicles for their wealthy clientele in 2021.
This year, Arcane reported an influx of 140,000 BTC ($6.56 billion) into Bitcoin exchange-traded funds (ETFs) and fully supported exchange-traded instruments.
Additional Bitcoin units were incorporated into investment vehicles as a result, indicating increased institutional demand for the crypto.
In comparison, gold-backed ETFs are expected to lose $8.8 billion in 2021, as per research released by the World Gold Council in December.
Is it volatility that drives higher achievement?
BTC/USD 1 DAY PRICE CHART: SOURCE – COINMARKETCAP.COM
Nevertheless, Bitcoin‘s somewhat better performance in 2021 has been accompanied by moments of significant volatility.
Many economists feel that Bitcoin’s excessive price volatility prevents it from being an appropriate inflation hedge. Leonard Kostovetsky, a finance teacher at Boston College, noted in a blog article that there are already 13 days in 2021 when the price of Bitcoin has changed more than 10% in one way.
Arcane, too, noted that Bitcoin was more unpredictable than the S&P 500 in 2021, stating that the crypto “acted like a risk-on asset” by simply magnifying the most dramatic stock market fluctuations.
The study used VIX, a gauge of volatility expectations dependent on S&P 500 index possibilities, to illustrate the link between Bitcoin and stock markets. It was noticed that when VIX values soared recently, BTC’s price plummeted sharply, indicating that institutional traders considered Bitcoin as a risk-on asset.
As a consequence, Bitcoin’s ability to drop further in the aftermath of a stock market drop increased. Arcane also mentioned that a negative 2022 for the S&P 500 might wipe off a large number of Bitcoin’s profits.
However, Aristides Capital trying to manage member Chris Brown goes further in forecasting the end of Bitcoin in 2022. He predicted that cryptos would face major selloffs when the Federal Reserve of the United States ended its $120-billion-a-month asset-purchasing program, accompanied by three rate rises next year.