It’s a big week for those of us tasked with making the case for bitcoin and crypto as an investable asset class. While global markets have been ugly, unpredictable and fragile of late, digital assets held steady with moderate volatility.
STORY CONTINUES BELOW
Bitcoin was up ~ 5% and the CoinDesk 20 Index was up ~ 6% last week. In a landscape where traditional assets seemed to lose their footing, crypto’s resilience offers an intriguing counternarrative to the skeptics who’ve long questioned its legitimacy during market stress.
A week ago (April 6), I described the market as a bus teetering on a cliff’s edge. It might have been exhilarating for skillful traders, but unhedgeable for managers of traditional asset portfolios. Sure, being long equity puts might have looked (and felt) great as futures tumbled Sunday night (April 13), but monetizing those puts in an extremely choppy and high-velocity market is near impossible – and forces the hedger to “call a bottom.” If you don’t monetize the puts and the market rebounds, your puts decay to zero, locking in a loss. (Or, if your hedge of choice was a retreat to U.S. Treasuries, it was even worse.)
The art of risk management in traditional markets is proving increasingly difficult in this environment. Even professional traders with decades of experience found themselves whipsawed by the market’s violent moves. For those managing pension funds, endowments, or family offices, the challenge of preserving capital while maintaining return targets has rarely been more daunting. The playbook that worked for the past decade seems increasingly irrelevant.
Amid the chaos, bitcoin kept a pretty narrow range. The two weakest periods, on April 7 and 9, lined up with perp liquidations (forced sales of leveraged positions that are much more “standard practice” in crypto than in traditional markets). This gave pundits a handy “low” price to challenge bitcoin’s aforementioned resilience, but we should push back here. Temporary liquidation dips are just that — artificial flows that are recoverable. They create a nice lower candle wick, but don’t always represent the whole market fairly; we should discount their relevance accordingly. (This may be a controversial view; fire away if you disagree.)
As usual, pundits and skeptics blurred bitcoin’s “store of value” claim with “flight-to-quality” and “safe haven.” We will keep pounding the drum on the difference between “flight-to-quality”/”safe haven” and “store of value” assets. Bitcoin, still in its adolescence and with limited access to traditional liquidity pools (i.e., banks), shouldn’t be expected to function as a mature flight-to-quality or safe haven asset during extreme volatility episodes. Similarly, there are things I don’t expect or enlist my teenage children to do.
Seeing gold’s outperformance vs. bitcoin this year supports this argument. Gold has better access to traditional finance, is perceived to be limited in supply, and has a mature network. But does it have adoption momentum? Is it an asset of the future? While gold glitters in times of geopolitical and economic uncertainty, bitcoin offers something different – a technological evolution in the concept of money itself, with adoption curves that continue to remind us that we’re still early in its lifecycle.
The week’s crypto-supporting experience was capped by April 11’s University of Michigan Consumer Survey, which delivered two powerful data points supporting bitcoin’s price trajectory: the highest expectations for 1-year inflation since 1981(!) and elevated expectations for unemployment.
Source: University of Michigan
Source: University of Michigan
We favor anchoring bitcoin’s demand to expected real interest rates — the difference between expected nominal rates and inflation expectations. When real rates are expected to rise, bitcoin faces headwinds. Conversely, when real rates are expected to fall due to higher inflation and potential rate cuts (hello, rising unemployment expectations), bitcoin tends to benefit. The Michigan survey numbers provide a surprisingly clear north star for bitcoin accumulation: 1) higher expected inflation and 2) unemployment expectations that could prompt Fed easing. Lower nominal rates, higher inflation.
This framework helps explain bitcoin’s impressive performance during previous easing cycles and suggests we could be entering a similarly favorable environment. The divergence between consumer inflation expectations and the Fed’s more sanguine outlook bears watching closely – historically, the consumer has often proven more prescient than the central bank.
With Paul Atkins now cleared to lead the SEC and other supportive regulatory developments, the broader crypto ecosystem shows promising signals. Can we expect the rest of the broad-based CoinDesk 20 Index, which covers about 80% of the market, to participate in a potential bitcoin-lead rally?
Two factors suggest yes.
First, asset correlations rarely break down during broad market rallies in this sector.
Second, the pro-blockchain uptrend dynamics we witnessed last November could reappear and reignite interest across Layer 1 blockchains like Ethereum, Solana, Sui, Cardano, and Avalanche, infrastructure providers like Chainlink and Filecoin, DeFi protocols like Uniswap and Aave, financial services assets like Ripple, and other sectors.
The potential for a broader rally suggests that diversification within the crypto space could once again prove rewarding, particularly if regulatory tailwinds continue to strengthen. The tide that lifts bitcoin rarely leaves other quality projects stranded.
