One of the most common narratives in the Bitcoin space is that it is completely uncorrelated with other financial markets. The reason is that cryptocurrency is largely separate from normal economic trends, and this makes it easy for many people to think that Bitcoin is not affected by, say, a recession.
However, over the past few months, the narrative seems to be re-examined.
In March and April, the BTC and S&P 500 traded with very close correlation. Every time the stock market rallies, so does the BTC, coupled with minute-to-minute correlated price actions that cause concern.
Many see Bitcoin as going to face bearish, because one of the characteristics that says Bitcoin is “uncorrelated” shows the opposite reality. However, actually it might be a good thing. This is why.
The Relationship Between Bitcoin And S&P 500 Is Not Completely Bad
The correlation of Bitcoin with equity is again seen to be uncorrelated for most of May and the first half of this June.
Digital asset manager Charles Edwards recently noted: “Bitcoin and its correlation with shares in 2020. We (unfortunately) have” recombined their correlation “on June 10th. The highest correlation of all time. Notice the trend? High level of fear and uncertainty (eg VIX) = high level of correlation. “
This is not entirely bad, as noted by an analyst.
Pseudonymous analyst “PlanB” recently said that Bitcoin has a correlation of 95% (R squared) and is co-integrated with the S&P 500, which means that BTC is “not an uncorrelated asset.”
But he noted that with the Federal Reserve supporting stocks through the amount of recorded monetary stimulus, BTC would benefit:
“Yes, the FED is trying to stop QE in November 2018, the effect on S&P and BTC is just as bad. The FED will never do anything like that again. IMO has no turning back, it is QEternity, “analysts wrote with reference to the latest Federal Reserve policy.
More Potential from Stocks
Although Bitcoin can follow the trends of the S&P 500 and other markets, that does not mean that the positive side of BTC is limited to equity.
Paul Tudor Jones, a billionaire investor widely regarded as one of the world’s best macro analysts, wrote in a research note last May that Bitcoin is the “fastest horse in the race” when compared to gold, equity, bonds and other asset classes.
Jones cited the scarcity of 21 million Bitcoin coins as the main reason why cryptocurrency can make prices much faster than other asset classes.
Raoul Pal shows optimism.
Former Goldman Sachs executive also told the Bitcoin podcaster, he suspected BTC would be the best performing asset in the 2020s, the same as the last decade. He linked this sentiment to his opinion that compared to other cryptocurrency, equity, bonds and real estate were overvalued from a long-term perspective.