Bitcoin provides access to a decentralized cryptocurrency that’s free from government or central bank control. However, many Bitcoiners are wondering if BTC operates as a solid hedge against the stock market.
Crypto experts typically recommend allocating at least 5% of your investment portfolio into crypto so you aren’t 100% exposed to the stock market. We’ll talk a look and see if Bitcoin is a proper hedge against stocks.
Is Bitcoin a Hedge Against Stocks?
Bitcoin has been recently correlated to the stock market ever since the Fed raised interest rates. According to the BTC Pearson Correlation, Bitcoin and the S&P 500 are moving closer together.
That’s because Wall Street and institutional investors trade Bitcoin as a separate asset class, which causes a lot of higher volume and volatility in the crypto markets. Coinbase has over 14,500 institutional investors using its platform to buy and sell crypto.
In the short run, Bitcoin and the stock market are heavily correlated. However, things change drastically over the long run when CAGRs are compared side by side.
Bitcoin’s CAGR Outperforms the Stock Market Over the Long Run
Bitcoin’s low inflation rate and scarce supply makes it more valuable than any single stock or ETF. You cannot increase Bitcoin’s fixed 21 million total supply but any publicly traded stock can increase its shares outstanding by performing a stock split or issuing more shares using a stock sale.
That’s why Bitcoin has a 110% 10 Year CAGR compared to the S&P 500’s 10% 10 Year CAGR.
You would have made a lot more money if you invested in Bitcoin over the past decade versus the stock market. Bitcoin acts as a wonderful hedge against the stock market due to its impressive CAGR.
Consider Adding Bitcoin to Your Investment Portfolio
If you haven’t purchased Bitcoin already then perhaps it’s time to buy some BTC to balance out your investment portfolio. If you’re unsure about Bitcoin in general then start investing with $100 in Bitcoin and see what happens.