Is BTC truly a hedge against a failing economy?

BTC is widely considered to be a strong hedge against inflation and a failing economy (as is crypto in general) - primarily due to capped total supplies or deflationary tokenomics.

In extreme scenarios i.e. third-world, developing or war-torn nations, this is undoubtedly true. BTC offers an economic lifeline to those in, e.g., Venezuela, who experienced +65,000% inflation in 2018.

But what about in developed nations? Is there any evidence for this assertion?

Historically, BTC's correlation to traditional assets has been low to non-existent, as tabulated and visualised below:

Annual correlation to BTC. Source: VanEck, Feb 2021.

However, in 2020, this correlation began to strengthen - with BTC now displaying, in particular, a moderate correlation (0.34) to Gold (a classical hedge). Interestingly, these correlations, so far, have weakened in 2021.

To put this into perspective, the S&P 500 showed a correlation to U.S. Real Estate and Oil of 0.73 and 0.34 respectively (between 2012-2020).

Conclusion: BTC typically moves independently of the wider economy, as expected for a niche and nascent market. But as institutional investment increases and the space grows, this may no longer be true going forward.

Does this mean you can safely ignore the wider economy? NO!

The above data shows global correlations. BTC has and will always show local correlations:

Correlation between S&P 500 and BTC. March-August 2020 i.e. COVID-19.

There is no causation here. The S&P 500 and BTC simply respond to the same macro-economic stimuli - inflation/liquidity injections, world events (e.g. COVID-19) and so forth. In times of economic uncertainty, people will liquidate assets regardless of what those assets are.

It's also important to remember that BTC was created in response to the last, significant crash (2008). BTC will be battle-tested now going into 2022 - arguably for the first time - as the full effects of COVID-19 and reckless federal reserve policy hit.

Ultimately, if the economy crashes, so will BTC. There is no way around that - the economy will take everything with it.

Is BTC truly a hedge against a failing economy? IMO, not yet or it remains to be seen, but it has potential. This subreddit is an echo chamber and it's easy to have tunnel-vision when investing in crypto - as if no other economies or assets exist. My advice to you is to avoid this, educate yourselves and keep an eye on the wider economy. It will affect your portfolio.