Not A Serious Relationship: While Some Markets And Bitcoin Correlations Seen, Bitcoin Demonstrates Sign Of A True Asset Victory

If there’s one thing traders look for – its trends and sentiment. While Bitcon has not demonstrated any significant correlation to commodities, equities or fixed-income products, it does show a limited correlation to the markets. The question is – does it matter, and if so, why? 

As reported by the Wall Street Journal earlier this year, volatility in Bitcoin, which is largely sentimental, can, in fact, signal a shift in the stock market. There are others too, including a recently published article by CCN which indicates that there is now a negative correlation between Bitcoin and the S&P 500.

Serious correlations signal serious use, and Bitcoin has demonstrated signs of a highly relevant asset that carries its own weight in painting a picture of the financial market and institutional investors are starting to take notice. But one must always remember that the size of the correlations can vary and it can never happen again.

DataTrek research suggests a “correlation between bitcoin and stocks is at its highest when sentiment…is the primary driver of moves in the financial markets.” 

This is highly relevant in the current paradigm, where human relationships are the primary cause of tectonic market shifts and offer traditional traders a glimpse into future trends of an asset.

Traders are only human, and when psychologically driven factors influence decisions, both the stock and crypto markets behave similarly. When traders are nervous – they will be nervous across the board.

Nowhere was this more obvious than the market correction of the U.S.-China driven summer of 2019, when turbulence on Wall Street caused Bitcoin to tumble.

It makes perfect sense because risk hungry investors lose their appetite for all risky assets and begin to sell.

There are other correlations too, and it is certain additional ones will probably be found as people look for connections as we always do.

In August,  Marketwatch reported  “Bitcoin’s correlation with the S&P 500 was -0.402, while Ethereum’s correlation with the stock market index was -0.322. The index’s correlation between Bitcoin Cash, Litecoin, Ethereum Classic, and Bitcoin SV was -0.32, -0.216, -0.267 and -0.223 respectively.”

Once the markets recovered, Bitcoin lost nearly $1000 in value.

Is this proof-of-safe-haven, and is that proof really required?

Bitcoin is a largely independent asset, as CNBC reported in 2019.

Sometimes it correlates and sometimes it doesn’t. What matters is that everybody is talking about it because of its use. In fact, a VanEck analysis revealed while other markets had moderate correlations to one or two traditional asset classes, Bitcoin maintained a very weak correlation to all of the asset classes examined. In other words, Bitcoin could fit nicely into an investment portfolio and boost returns. A VanEck portfolio with 58.5% of the fund distributed to equities, 38.5% to bonds and 0.5% to Bitcoin generated returns that surpassed that of a portfolio allocated solely to the S&P 500 by over 150% as of July 2019.

CoVenture Research demonstrates that a portfolio with just a 1% allocation to cryptocurrency substantially outperforms a traditional 60% Stocks, 40% Bonds asset allocation over the last 2 years.

With the difficulties and expense of SWIFT, cross border transfers are increasingly switching to USDT – and this is increasingly popular in Third World nations. The global market is projected to grow to $1.035T in 2020.

Investors must realize that Bitcoin and certain other digital assets are not only profitable investment instruments but a full-fledged store of value that will only grow in use because of how competitive it is in so many ways.

F. Scott Fitzgerald said “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time, and still retain the ability to function.” This is vital to understanding how Bitcoin and digital assets can benefit you. Collect information, look for profit and keep a cool head.

Bitcoin’s victory has already arrived and it is only going to grow bigger. Bitcoin and digital currency is fast becoming a part of an everyday investment portfolio as well as a transfer of value. And if this is not the case for you – it should be.

So does it matter that some correlations exist? To a very limited degree. If only to demonstrate that digital currencies have become a powerful and reliable player in the financial industry.