Bitcoin (BTC) may exist downwards over 30% from its tape high of $69,000, but it has emerged every bit one of the best-performing financial avails in 2022. BTC has bested the Us benchmark index the S&P 500 and golden.

Arcane Enquiry noted in its new report that Bitcoin'south year-to-appointment functioning came out to be about 73%. In comparison, the S&P 500 alphabetize surged 28%, and gold dropped by seven% in the same period, which marks the tertiary consecutive year that Bitcoin has outperformed the two.

Bitcoin vs. S&P 500 vs. gold in 2022. Source: Arcane Inquiry, TradingView

At the core of Bitcoin's extremely bullish performance was higher inflation. The U.S. consumer toll index (CPI) logged its largest 12-calendar month increase in four decades this November.

"Nigh economists didn't see the high inflation coming, as witnessed by the 1-yr ahead consumer inflation expectations," the Arcane written report read, adding:

"With its 73% proceeds in the highly inflationary 2022, Bitcoin has proven itself to exist an excellent inflation hedge."
Aggrandizement 2022: Actual CPI vs. Expected CPI. Source: BLS, New York Fed

Bitcoin holdings grew among institutional investment vehicles

Loose budgetary policies and a sustained fright of college aggrandizement as well prompted mainstream financial houses to launch crypto-enabled investment vehicles for their rich clients in 2022.

Arcane reported an inflow of 140,000 BTC (~$vi.56 billion) beyond spot- and future-based Bitcoin commutation-traded funds (ETF) and physically backed exchange-traded products this year.

Bitcoin substitution-traded fund holdings. Source: ByteTree, Cabalistic Research

That prompted more than Bitcoin units to get captivated into investment vehicles, underscoring a greater institutional need for the cryptocurrency.

In dissimilarity, gold-backed ETFs witnessed an outflow of $eight.eight billion in 2022, according to the World Gold Council'due south report published this December.

Global gilt-backed ETF flows. Source: World Gilt Council

Volatility behind superior performance?

Nonetheless, Bitcoin's relatively superior functioning in 2022 has included periods of high volatility.

Many analysts believe that farthermost price fluctuations go along Bitcoin from becoming an ideal aggrandizement hedge. That includes Leonard Kostovetsky, a finance professor at Boston College, who recalled in his blog postal service that in that location have been 13 days in 2022 when BTC'southward price has moved over 10% in ane management. He wrote:

"It seems strange to think that a person who is worried near holding dollars because they lost 7% of their value over the terminal year would exist comfortable holding Bitcoin which could (and frequently does) lose that much value in a single day."

Arcane, too, recognized Bitcoin for having been more volatile than the S&P 500 in 2022, noting that the cryptocurrency "behaved similar a take a chance-on asset" by merely amplifying the most significant stock market movements.

The researcher cited VIX, a measure out of the expectation of volatility based on S&P 500 index options, to exemplify the relationship betwixt Bitcoin and stock markets. It noted that BTC's price fell hard whenever VIX readings spiked in recent times, underscoring that institutional traders viewed Bitcoin equally a take chances-on nugget.

Bitcoin vs. VIX. Source: Arcane Enquiry, TradingView

Equally a result, Bitcoin'due south potential to fall harder in the wake of a stock market place correction also became higher. Arcane likewise noted that a bearish 2022 for the South&P 500 may finish up wiping a big portion of Bitcoin'southward gains.

"Therefore, be aware of stock market place headwinds in the adjacent year and their possible implications for bitcoin's brusk-term price trajectory," it added.

Related: Arcane Research releases its crypto predictions for 2022

Just Aristides Upper-case letter managing fellow member Chris Brown went far in predicting an all-and-all Bitcoin doom in 2022. He stated that cryptocurrencies could face massive selloffs ahead as the U.S. Federal Reserve ends its $120-billion-a-month asset-purchasing program followed by 3 rate hikes next twelvemonth.

BTC/USD weekly toll nautical chart vs. Federal Reserve residuum sheet. Source: TradingView

"If the Fed really does hike rates plenty to brand money considerably less loose, or if markets believe they will, you are going to see certain areas of speculation come to a screeching halt," Brown said, adding:

"The prime instance of such asset speculation is cryptocurrency; here lies $ii.64 trillion of 'wealth' that is backed by nothing and generates no cash flows."

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