Many investors go to Bitcoin (BitfinexUSD) as a fence against the global financial system. However, as the data shows, Bitcoin has not been saved from the most recent money related emergency due to covid-19.
This report reported by Cointelegraph Monday (06/04) will try to analyze the movements of global financial markets and their correlation with CME Bitcoin Futures during this virus crisis. And will consider other market data sources.
As of 10:13 pm West Indonesia Time, citing Invesing.com data, bitcoin rose 0.55% to $ 6,835.8.
The recent market drop has really challenged Bitcoin’s claim to “digital gold” and tested its statement as a financial “safe haven”.
21-day rolling correlation data (between gold, stocks, bonds, oil and crypto assets) shows that Bitcoin has recently become increasingly correlated with other global financial assets. These statistics should be worrying for crypto currency investors who are trying to find a safe place in the midst of all the financial market turmoil.
This also happened almost the same for gold and physical gold also did not protect investors from this financial storm according to the 21-day rolling correlation data. The correlation between gold and other financial assets has also surged so far and this indicates that the world financial markets are more interconnected than previous trends.
Regardless of the increased correlation, a portfolio consisting of 80% shares and 20% Bitcoin will outperform the portfolio of 100% shares from a risk-adjusted return perspective for the past three months and also over the past year.
However, if we only look at the last month, Bitcoin would be better avoided.
It is true that Bitcoin remains a relatively free and uncorrelated asset in stable economic times. But it is not enough. To be considered a true financial safe haven, it must be strong against shocks that hit other financial markets. Especially in times of chaos, asset performance must be placed under close supervision.
However, the recent surge in Bitcoin prices has shown quite promising signs. This can give crypto currency holders hope.
The HODL30 index, a portfolio of 30 major cryptocurrencies calculated based on market capitalization, is less correlated with the overall financial market than Bitcoin. The correlation between this index and American stocks is significantly lower than the correlation between Bitcoin and shares in the US. If crypto investors want to protect themselves from global market fluctuations, observing this index might be helpful.
Time will reveal whether Bitcoin or other cryptocurrency will meet investors’ expectations as a financially secure place. In a financial system that is closely interrelated, something like that might prove impossible.