Bitcoin’s correlation with gold and stocks is growing


Bitcoin (Bitcoin) Is an unrelated asset, or the past narrative is like this. For most of Bitcoin’s life, it has been valuable to a small group of people. Now, awareness and demand are rapidly accelerating. So, what does this mean for BTC’s status as a so-called unrelated asset?

Bitcoin is an irrelevant asset is not just a guess — data supports it.according to data The report prepared by VanEck at the beginning of 2021 showed that there was almost no obvious pattern to follow in the trend of Bitcoin and other markets (including the S&P 500 index, bonds, gold, real estate, etc.) from 2013 to 2019.

However, as shown in the figure below, since 2020, the related patterns of various asset classes have undergone significant changes, the most notable being the stock market and gold.

In addition, according to data Compiled by DBS Bank, the bank of Singapore, the correlation between Bitcoin and the stock market continues to increase throughout 2021.

It is worth noting that the increasing correlation of Bitcoin with stocks and gold is not unusual. Due to the status of gold as a hedging tool during stock market volatility, these markets are generally considered to have an inverse relationship. However, there is no doubt that due in part to market turbulence caused by macroeconomic factors, stocks and gold will be in generally bullish markets for most of 2020 and 2021.

This model explains how BTC shows its correlation with these two assets. However, the claim that Bitcoin may be most closely related to gold seems to be increasingly volatile.

First, the theory is based only on the view that investors may view BTC as a store of value in the event of a broader market downturn, providing it with the same “safe haven” status as gold. However, for most of the Bitcoin life cycle, it has existed during economic prosperity, at least in more developed economies, so the theory has never been tested.

Not digital gold?

Oliver Renick, Analyst, TD Ameritrade debate The correlation between BTC and macroeconomic events is much higher than that of gold. The head of commodities research at Goldman Sachs recently stated publicly that Bitcoin is more like “digital copper” than digital goldHis position is that Bitcoin acts more like copper as a “safe-haven” asset, while gold acts as a “safe-haven” hedge.

Brandon Dallmann, chief marketing officer of Unizen, an exchange ecosystem operator, believes that Bitcoin is not a gold-like asset. He told Cointelegraph: “Bitcoin’s current volatility really prevents it from becoming a stable store of value. In addition, when other assets When the value of gold is depreciated, the price of gold tends to rise, and Bitcoin has not shown such a stable upward and downward trend.”

However, if Bitcoin does have characteristics similar to gold, it may not necessarily be a positive development for those seeking volatility, because its trading potential will definitely decline.

Recently, market demand seems to indicate that the negative correlation between Bitcoin and gold is stronger. May sell-off in the crypto market Can prompt Fleeing investors continue to buy gold.

The correlation between Bitcoin and the stock market seems to be undergoing a different shift. The events of the past 18 months or so have further confirmed the argument that Bitcoin is related to the stock market and bonds may become stronger. In March 2020, due to the widespread uncertainty of COVID-19, the stock market began to fall. A cryptocurrency Black Thursday quickly followed.

Recently, the price fluctuation of Bitcoin may be related to Investor uncertainty about technology stocks. Barry Silbert also Tweet He believes that the crypto market is related to stocks.

What links BTC to stock prices?

There are several factors that explain why Bitcoin seems to be increasingly associated with the stock market.First, the meme stock movement that started in February and most recently GameStop Around the re-emergence of AMC stock, Caused a sensation in the stock trading industry. The emergence of a new generation of digital-savvy investors bridging the gap between cryptocurrencies and stocks can explain why the correlation between these two assets is increasing.

However, another key factor must be the inflow of institutional funds into cryptocurrencies. Although the argument of “irrelevance” holds up when cryptocurrencies are dominated by retail investors, the situation is getting different. Logically speaking, if both markets are composed of the same participants, then correlation is inevitable.

related: GameStop inadvertently paved the way for decentralized finance

This correlation model is also meaningful when the relevant data is drilled down to the level of indexes or even individual company stocks.Although Bitcoin Correlation Since the S&P 500 Index and the Nasdaq Index are relatively low, at 0.2, companies investing in Bitcoin show a higher correlation. Tesla is about 0.55, MicroStrategy is higher than 0.7, and Grayscale’s Bitcoin Trust is higher than 0.8.

Inferring what this might mean if the institutional trend continues, as long as the company hopes to hold BTC on its balance sheet, the correlation between Bitcoin and the stock market seems to continue to increase. However, Igneus Terrenus, head of communications at Bybit Exchange, believes this will take a long time to happen, and he told Cointelegraph:

“In the long run, when institutional adoption really starts, the situation may change a lot, and more of the more than 40,000 listed companies begin to include BTC on their balance sheets. But currently, most institutional investors are Use Bitcoin as a diversification tool in its portfolio. We have not yet seen any major signs of convergence in price movements.”

Two-way relationship

Correlation is not causal, and the relationship between Bitcoin and the stock market is not one-way. Although events in the stock market may cause BTC market volatility, is the opposite also true? It seems very possible, especially if institutional interest in BTC continues. Compared with the era of cypherpunk, flagship cryptocurrencies will be more susceptible to macroeconomic factors.

Nevertheless, Bitcoin still has its own market forces at play. If the value of a company’s balance sheet fluctuates, these forces may eventually affect global stock markets. For example, the Bitcoin halving event has a striking connection with its price cycle. Daniele Bernardi, CEO of Diaman Partners, a financial technology management company, believes that BTC’s own price cycle will exceed the influence of institutional investors. He told Cointelegraph:

“The main participants involved in the dynamics of the crypto market are traders, so the introduction of institutional investors may curb volatility, but I suspect that the current strong cyclical pattern in Bitcoin price formation will cover any correlation with other markets. “

It is also worth remembering that external factors such as electricity prices, the availability and cost of mining equipment, and regulatory developments all affect the price of Bitcoin.

Therefore, it seems unlikely that many companies will adopt the same enthusiastic attitude towards BTC investment as MicroStrategy, and if they invest in cryptocurrencies, they may take a more cautious and diversified path.However, an idea Xinjiang power outageIt may wipe out trillions of dollars in the S&P 500 index, which may be a little daunting.

What about altcoins?

Another interesting consideration is what will happen to other cryptocurrency markets if Bitcoin is more closely linked to the stock market. So far, although there may be some strange exceptions, the cryptocurrency market has generally followed Bitcoin.

However, the interest of institutions in cryptocurrencies does not necessarily extend far in the crypto rankings. Therefore, due to the split of the investor base between individuals and institutions, is it possible to see that the price changes in the altcoin market are less correlated with Bitcoin?

related: Bullish all the way? MicroStrategy doubles its bet on Bitcoin

The shift in investor image, even if it has just begun, is the most direct explanation of why BTC does not always perform in the same way as the previous halving cycle.

Of course, there may be other factors at play. Regardless of the future, what seems indisputable now is that BTC is inseparable from the global market in an unprecedented way.