Fidelity's director of global macro, Jurrien Timmer, has shed light on Bitcoin's evolving relationship with traditional investment assets, positioning the cryptocurrency as a potential diversifier in modern investment portfolios. In a series of posts on the X social media network, Timmer analyzed Bitcoin's correlation to the S&P 500, noting a distinct but lessening tie to equities compared to other assets.

He suggested that Bitcoin could find its place in the alternatives (alts) bucket of the classic 60/40 investment portfolio due to its unique correlation characteristics. Bitcoin's correlation with traditional financial assets has long been a point of discussion among investors. The largest cryptocurrency still moves in tandem with equities to some degree, but it's not as closely linked as other assets, according to Timmer's analysis.

Notably, Bitcoin exhibits a negative correlation with the U.S. Dollar and Treasury Bills and shows no significant correlation with gold. This uncorrelated behavior with gold puts into question the premise that the bellwether coin and gold are contemporaneous safe havens. Yet, Timmer views the diversification potential positively.

According to Timmer, Bitcoin's volatility is roughly four times that of gold, yet when adjusting for this, a much smaller allocation to the flagship cryptocurrency could equate to a larger position in gold over the past five years. Timmer's analysis suggests that a blend of gold and Bitcoin could enhance the "store of value" proposition within an alternative investment strategy.

As reported by U.Today, the Fidelity executive recently referred to the digital asset as "exponential gold" due to its capacity to act as a commodity currency and a hedge against monetary debasement in the digital era. With attributes such as decentralization, limited supply, and censorship resistance, Bitcoin could be seen as the digital age's answer to gold's historical monetary role.

Timmer’s reasoning is built on the concept of “fiscal dominance,” where the government moves to expand the money supply, threatening the purchasing power of the currency. He notes the inflation in the works, as confirmed by the historical M2 money supply/CPI relationship. And while BTC and gold are arguably the most inflation-resistant assets based on the theory, Timmer believes that such an environment had yet to materialize fully, even after the Federal Reserve’s recent hawkishness.

Furthermore, for the love of volatility, Bitcoin is also called “digital gold,” “gold 2.0,” and “exponential gold” because, on the one hand, Bitcoin has all the monetary items that gold has. Still, it is also a New internet technology, according to Timmer. However, for Bitcoin to enter and maintain its place with gold, fiat monetary aggregates would have to keep growing for an excessive amount above the normal trends.

While there was a spike in the M2 money supply during the recent pandemic, tightening monetary policy by the Federal Reserve made it short-lived, according to Timmer. This suggests that gold and Bitcoin might be premature in their roles as absolute stores of value. Currently, Bitcoin’s price has surged to $69,523, following the latest CPI report indicating a slowdown in inflation, which might suggest a strengthening of its position as a store of value.

This report was also reflected positively in gold’s price as the asset could see a 0.91% surge over the past 24 hours with a current trading price of $2,336. Meanwhile, according to the latest data reported by Barchart, the Bitcoin (BTC) price has lost its correlation with the 10-year U.S. Treasury (UST) bond yield as the correlation has dropped to its lowest level over the last 14 years, equaling -53.

The split signifies that BTC is now progressing independently, without the market being swayed by conventional fiscal instruments such as the yield on S Treasury bonds. This metric determines investor yields in government securities. This could suggest that Bitcoin is anchored more loosely to traditional financial systems, which could be the beginning of its evolution into a pluck of its unique asset class.

If Bitcoin continues to decouple from these traditional financial metrics, it could greatly enhance its case for being a better non-traditional hedge against fiscal instability. However, the common limitations of Bitcoin and gold as stores of value, Timmer acknowledges, are based on economic conditions that are yet to play out, especially where the money supply and inflation are concerned.

In a recent LinkedIn post, Jurrien Timmer, the Director of Global Macro at Fidelity Investments, offered an insightful analysis of the role of Bitcoin and gold as potential stores of value in investment portfolios. His observations are particularly relevant in the context of modern portfolio management strategies.