Bitcoin's value proposition in the eyes of investors has changed since its inception.
Over the past decade, investors have touted bitcoin as a superior method of payment as well as a kind of digital gold. Some proponents have highlighted its nature as an uncorrelated asset as one feature that could make it a unique addition to a portfolio.
As noted recently by research by Ark Invest, bitcoin's deviation from the "behavior of other asset classes" could help it "serve as a strategic allocation in a well-diversified portfolio." Still, for much of the Covid-19 crisis, bitcoin has remained fairly correlated to the broader stock market, as noted by research from The Block.
Indeed, the 30-day rolling correlation between bitcoin and the S&P 500 has stood above 0.5 for the majority of the year.
But according to macro investor Raoul Pal, co-founder of Real Vision, that makes sense given bitcoin's currency attributes.
"It has the attributes of a currency and a bit of a commodity," he told The Block. "Currencies are what's known as Bayesian in distribution—which means that they have shifting variables that affect them."
He went on to say:
"Which is why currencies — which are very simple things — are so impossible to forecast. Because everyone goes look—it's the interest rate differential, and then it's not, and then it is the corporate M&A flow, and then it's not, and then it is the inflation rate in a country, then it is not. There's always a different reason. It shifts. Bitcoin has that. It has shifting correlation and that's okay. When you look over an extended period of time, the correction is not so much."
Considering the rate at which central banks have been expanding their balance sheet, bitcoin has outperformed—despite recent correlation. Here's Pal:
"Well, you take the G-4 central bank balance sheets, the equity market is basically underperformed over an extended period, then recently kind of held its own against it. Gold underperformed by 50%. Bitcoin [is] the only asset that killed it. Completely outperformed. Over-time even with the correlation between equities and bitcoin, the risk-reward is in favor of bitcoin."
Watch the full episode of The Block Live here.