Investors’ hunt for yield may soon intensify as inflation-adjusted earnings from the S&P 500, Wall Street’s benchmark index, fall into negative territory. However, that may not bode well for bitcoin in the short term.

The index’s real earnings yield – inflation-adjusted return for every dollar invested – was minus-0.81% last week, according to Barron’s, having turned negative in early May.

“The hunt for alternatives could escalate in the wake of negative real returns in the stock market,” Charlie Morris, chief investment officer at ByteTree Asset Management, told CoinDesk. “However, bitcoin is not exactly in the sweet spot right now.”

Bitcoin has been pitched as an inflation hedge by some cryptocurrency analysts, since the pace of its supply expansion is reduced by 50% every four years via a process known as a mining reward halving.

Read more: Bitcoin’s Long-Term Put Options See Sustained Demand as Price Consolidates

The cryptocurrency charted a near sixfold rally from October 2020 through March 2021, outperforming traditional assets by a wide margin, as the rising stockpile of negative-yielding global bonds drove investors further out on the risk spectrum.

With the S&P 500 Index of large U.S. stocks offering a negative earnings yield on an inflation-adjusted basis, one theoretically might expect more money to flow into crypto markets and propel bitcoin to fresh record highs.

S&P 500 vs real earnings yield
Source: Lohman Econometrics, Bloomberg, Jeroen Blokland

However, big gains may remain elusive for some time because the bitcoin market sentiment has weakened in recent weeks due to an increased focus on the potential environmental damage from cryptocurrency mining, and the greater regulatory scrutiny of the industry in China. 

“Bitcoin is being weighed down by regulatory fears,” Morris said, adding that the dour mood is reflected in on-chain activity.

Fears the U.S. Federal Reserve may soon scale back liquidity-boosting stimulus to contain inflation may keep investors from pouring money into bitcoin. Minutes of the April Fed meeting released last month showed policymakers were beginning to consider thinking about tapering and reduce the U.S. central bank’s $120 billion-a-month of bond purchases, a way of injecting extra liquidity into financial markets.

“A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” according to the minutes.

Tapering is a risk for bitcoin, according to Messari research analyst Mira Christanto.

“Bitcoin is considered by fiat-based institutional investors at the extreme end of the risk spectrum,” Christanto said in a recently published note. “It thrives in quantitative easing (QE), irresponsible fiscal and monetary policy, and doesn’t quite like quantitative tightening (QT).”

Read more: Bitcoin Rejected Near $38K After Two-Day Price Gain 

While Christanto doesn’t foresee the Fed pulling the plug anytime soon, she expects taper fears to persist for some time.

“Crypto investors still need to pay special attention to upcoming data prints, as capital to this new asset class is still mercenary and tends to overreact on the bull and bear side,” Christanto noted. 

Stock markets might look overdue for a pullback, with the negative earnings yield signaling overstretched valuations. With bitcoin sometimes trading in line with stocks, that might create downside risk.

Bitcoin versus the S&P 500.
Source: TradingView

Historically, negative real earnings yields have paved the way for stock market corrections, based on data shared by Jeroen Blokland, portfolio manager for the Robeco Multi-Asset funds, on LinkedIn. 

So a potential risk-off mood in stock markets could have an immediate bearish impact on the cryptocurrency. That goes against the popular narrative of bitcoin being a safe haven like gold – an asset preferred during times of stress.

“While bitcoin is sometimes referred to as ‘digital gold,’ gold is seen as a safe-haven, sleepy asset, while bitcoin is viewed as a risk-on, growth asset,” Messari’s Mira Christanto said.

Jeff Currie, head of commodities at Goldman Sachs, voiced a similar opinion during a CNBC interview on Tuesday.

“Digital currencies are not substitutes for gold,” Currie said. “If anything, they would be a substitute for copper; they are pro-risk, risk-on assets.”

“They are a substitute for risk-on inflation hedges, not risk-off inflation hedges,” Currie added.

Read more: Revisiting Paul Tudor Jones’ ‘Great Monetary Inflation’ Thesis 

Bitcoin fell sharply during the March 2020 crash and pretty much moved in tandem with the S&P 500 until the end of April 2021. The cryptocurrency fell last month on environmental concerns, decoupling from the rising stock market.

While the cryptocurrency may have tough time in the short run, Morris is confident that it will eventually bounce back with a vengeance.

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