Bitcoin is likely to fare worse than other assets in the coming months because it has no fundamental worth, an investment research firm said in a note Thursday.
London-based Capital Economics explained that the cryptocurrency has been quite closely correlated to the S&P 500 since the price started to fall from its record high at the end of last year.
But the correlation has been coincidental and related to specific factors. For bitcoin, the recent fall in value has been due to a plethora of factors including rising concern over regulation, a ban on cryptocurrency advertising from major internet platforms and some banks banning customers from buying it via credit cards.
Stocks meanwhile have been hit thanks to concerns over a U.S.-China trade war and potentially slowing growth.
“In other words, the factors driving bitcoin prices are still rather different to those driving the prices of other assets,” Capital Economics said in a note.
As a result, the research house said that while stocks are likely to fall further this year, bitcoin will be worse off.
“Bitcoin’s correlation with equity prices has strengthened recently, but we think that this will be just temporary. We still think that bitcoin is essentially worthless, meaning that it is likely to fare much worse than other assets in the coming months,” Capital Economics said.
“We expect equity markets to fall as investors cotton on to the fact that rising U.S. interest rates will slow economic growth. But the main factor driving down the price of bitcoin is likely to be a realization that it is simply not a credible long-run alternative to conventional currencies,” the note added.
Bitcoin rose to a record high above $19,000 toward the end of last year, but has since fallen dramatically and was trading around the $6,800 mark on Thursday, according to data from industry website CoinDesk. The digital coin had its worst first quarter in history in 2018.
Other investors have noted similar views to Capital Economics.
Jeffrey Gundlach told CNBC’s “Halftime Report” on Wednesday that the fall in bitcoin pointed towards the volatility that eventually hit stocks.
“Bitcoin very clearly leads risk assets,” he said.
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