Investors think stocks are overvalued and inflation is coming, and that's good for bitcoin

The crypto market got excited when Paul Tudor Jones gatecrashed the arena with a letter to investors laying out the idea that bitcoin would be an ideal investment to fight off an inflationary regime. 

At the time, market participants — including myself, to an extent — cheered at the possibility of the long-awaited wave of interest in digital assets among the upper echelons of Wall Street. Over a month later, while many aspects of market infrastructure continue to develop, such a wave has yet to materialize in a meaningful sense. Across the market, I continue to hear that new blood has yet to enter the space and that bitcoin still needs "a shot in the arm," as one investor noted.

It's no surprise that new blood has yet to budge.

Bitcoin is trading down more than 5% since Jones' letter dropped. Even its much-touted role in a portfolio as an uncorrelated asset hasn't stood up much. After disconnecting from the S&P 500 in late April and in May, it has remained highly correlated. 

On the retail side, it seems stocks from Hertz to Tesla have been favored over crypto. As our friend Joe Wiesenthal noted in a column recently, the stock and options casino has siphoned interest away from the crypto market. The chart says it all:

Case and point: I — a crypto reporter — wrote something yesterday that had nothing to do with crypto (it was one of my most read articles, ever).

Yet, I try to be a glass-half-full guy. As I scour sell-side research for things that have something remotely to do with bitcoin, I have stumbled upon two charts that could prove to be bullish. 

First, despite investors' apparent love affair with stocks right now, the overwhelming majority find the market to be overvalued. As per Bank of America's most recent Global Fund Manager Survey, 78% of FMS investors say the stock market is overvalued. That's a record since the survey began in 1998.

At the same time, inflation expectations continue to increase despite inflation staying relatively muted in the short-term. Consumer prices have only increased 10 basis points in the last 12 months, down from an annual rate of more than 2.3% entering 2020 according to data from FRED. As per BAML, FMS inflation expectations increased 31 points, "with net 21% of FMS investors expecting higher global CPI in the next 12 months."

The juxtaposition of anxiety about impeding inflation and the desire for opportunities outside of an overvalued stock market could be the perfect recipe, or shot in the arm, for bitcoin. 

Only time will tell.