Stephen Kelso, Head of Markets at ITI Capital comments:

“Elon Musk has had a significant impact on bitcoin once again, but this time by causing its price valuation to plummet. This will inevitably lead to some short term cold feet from the retail investors who were influenced to adopt bitcoin at the behest of Elon Musk’s initial appraisal of the cryptocurrency in the first place.  However institutional investors better understand the relevance of timeframes when looking at the correlations and covariances within multi-asset portfolios.  The recent resurgence of inflation fears and rising rates is hitting equities across the board but ITI expects that sooner rather than later, Bitcoin’s role as protection from the debasement of savings will re-emerge as it has done after knee-jerk ‘1-correlation’ moves over the last several years.

“In the time since Elon Musk first announced that Tesla would accept Bitcoin as payment, a lot has happened, and the world’s attention towards cryptocurrency has legitimised bitcoin as an investment vehicle - bitcoin has already won in becoming the ‘digital gold’ of the post-Covid climate, and will remain the ultimate hedge against the resulting debasement of fiat currencies.

“However, bitcoin is also a manifestation of the value of the internet, and hence it stands to reason that social media and the cult of celebrity has, and will continue to have, an effect on driving demand and causing short term valuation crashes. Tesla is not the first and nor will it be the last Big Tech superpower to introduce cryptocurrency payment plans, it will also not be the last to back track on such plans with a resulting short term impact on crypto markets, for better or for worse.”