Bitcoin is up almost 90% this year. Many crypto enthusiasts think this signals that bitcoin will replace the dollar in the global financial system. Yet it could also simply be a risk asset that has performed well in an environment of ample liquidity and increasing tech adoption. This could put bitcoin into a similar camp as top-performing NASDAQ companies like Chinese internet search company Baidu (up 57% this year), streaming device manufacturer Roku (up 41%) and Chinese video sharing company Bilibili (up 68%).

Moreover, if we look at the correlation between the level and changes in bitcoin and key macro markets, we find bitcoin is strongly correlated to near-term inflation expectations, Chinese stocks and tech stocks (Chart 1). So, it is moving with the strong reflation theme. Its correlation with commodity markets like oil and copper also shows this.