According to recent indices in a BofA report, Cryptocurrency volatility is still an elevated figure.
Bank of America, the second-largest bank holding company in the United States by assets, highlighted in a recent report that cryptocurrencies represent a risk rather than a store of value.
Bank of America explained in a statement that, while Bitcoin’s supply cap of just 21 million might be ideal understand and get more into this finite currency as an inflation hedge, the crypto gets marketed as a risky asset.
On January 31, the connections between Bitcoin and the S&P 500 stock index and between Bitcoin and the Nasdaq 100 index approached high peaks and the 99.73rd percentile. Various analysts guided by Alkesh Shah spoke about this matter on Tuesday. The bank also noted that the correlation between Bitcoin and gold, a metal often dealt with as an inflation hedge, remained almost at zero since June last year.
The Volatility of Digital Currencies
The digital asset has crumbled down from the highs experienced in 2013 but remains relative when it gets measured along with S&P 500, Nasdaq 100, and gold.
The volatility means that a currency like Bitcoin would not get accepted as an inflation hedge for investors in advanced nations. Many citizens in countries with a huge inflation rate could sense Bitcoin as an alternative to deal with inflationary seasons. In simpler words, this digital asset appears to be a solution for the inhabitants of Latin American nations, like Venezuela or Argentina.
What Happened in January
Likewise, the modest rally in crypto in recent days shows that is completely evident for Bank of America global crypto and digital asset strategist Alkesh Shah that January was not a crypto winter. Despite the price fall, Shah stated that his team might be waiting for crypto prices to reach high peaks in the second half of 2022.
Shah also highlighted that crypto and digital assets are risky methods, like stocks, commodities, or even real estate. Digital assets go through volatility due to their nature. Other economic factors, such as the Federal Reserve saying it may raise interest rates as soon as March, can impact the price of risky assets, and cryptocurrencies are no exception.
Shah and his team foresee seven climbs in 2022 and four next year. At the same time, it will keep going through temporary price decays for the next six months because markets have not fully calculated the potential interest rate increases.
Shah also explained that more investors would start showing more interest in blockchain networks like Ethereum, Binance Smart Chain, and Avalanche, which allow apps to get created on top of them. Each of these networks has its digital asset: Ether, BNB, and AVAX, that investors can purchase whenever they need to.
By: Jenson Nuñez
