npub1zl…22n8p on Nostr: Bitcoin's Unsuitability for Traditional "Risk On/Off" Frameworks The sources explain ...
Bitcoin's Unsuitability for Traditional "Risk On/Off" Frameworks
The sources explain that Bitcoin's inherent characteristics make it unsuitable for traditional finance frameworks, particularly the "risk on" versus "risk off" analysis. Here's why:
Bitcoin's risk and return drivers are fundamentally different from traditional assets. Unlike stocks and bonds, Bitcoin is not directly influenced by factors like interest rates or corporate earnings. [1, 2]
Bitcoin is a global, decentralised, fixed-supply, non-sovereign asset. This makes it behave differently from assets tied to specific economies or political systems. [1]
Bitcoin's adoption trajectory is likely driven by factors that are the inverse of those impacting traditional "risk assets". For example, concerns about global monetary stability or geopolitical events, which typically negatively impact traditional assets, could potentially drive Bitcoin adoption. [3]
While Bitcoin has shown short-term correlations with equities, particularly during liquidity crises, these are short-lived and don't reflect a long-term relationship. [4, 5] This is likely because Bitcoin offers immediate liquidity in times of stress, not because it's fundamentally tied to equity markets. [6]
Bitcoin is still a risky asset due to its relative novelty and evolving regulatory landscape. However, these risks are unique to Bitcoin and not directly comparable to those of traditional assets. [7, 8]
In conclusion, while Bitcoin might exhibit short-term price movements that appear correlated with traditional assets, its underlying drivers are distinct and often inversely related, making the traditional "risk on/off" framework inadequate for understanding its behaviour. [9]
The sources explain that Bitcoin's inherent characteristics make it unsuitable for traditional finance frameworks, particularly the "risk on" versus "risk off" analysis. Here's why:
Bitcoin's risk and return drivers are fundamentally different from traditional assets. Unlike stocks and bonds, Bitcoin is not directly influenced by factors like interest rates or corporate earnings. [1, 2]
Bitcoin is a global, decentralised, fixed-supply, non-sovereign asset. This makes it behave differently from assets tied to specific economies or political systems. [1]
Bitcoin's adoption trajectory is likely driven by factors that are the inverse of those impacting traditional "risk assets". For example, concerns about global monetary stability or geopolitical events, which typically negatively impact traditional assets, could potentially drive Bitcoin adoption. [3]
While Bitcoin has shown short-term correlations with equities, particularly during liquidity crises, these are short-lived and don't reflect a long-term relationship. [4, 5] This is likely because Bitcoin offers immediate liquidity in times of stress, not because it's fundamentally tied to equity markets. [6]
Bitcoin is still a risky asset due to its relative novelty and evolving regulatory landscape. However, these risks are unique to Bitcoin and not directly comparable to those of traditional assets. [7, 8]
In conclusion, while Bitcoin might exhibit short-term price movements that appear correlated with traditional assets, its underlying drivers are distinct and often inversely related, making the traditional "risk on/off" framework inadequate for understanding its behaviour. [9]