Bitcoin is the best performing asset in recent years after many storms

Earlier this month, the correlation between Bitcoin and the S&P 500 reached an all-time high (ATH), raising questions about Bitcoin's "digital gold" nature, namely that its assets were incompatible with Traditional market.


Historical correlation between Bitcoin and S&P 500

Follow chart For Coin Metrics, the Pearson 90-day correlation coefficient between Bitcoin and the S&P 500 reaches ATH of about 0.5 in mid-March. The factor 1 indicates a perfect correlation, 0 is completely correlated and -1 is the inverse correlation.

Blockchain Capital's partner Spencer Bogart, co-founder of Nic Carter of Castle Island Ventures and Coin Metrics, and co-founder Kevin Kelly of Delphi Digital analyzed the significance of the high correlation between Bitcoin and the major stocks in history.

What happened to ‘digital gold’?

Although Bitcoin plummeted after the World Health Organization classified COVID-19 as a pandemic, the reality did not bring too many surprises. Bitcoin is a barrier against the collapse of the fiat money system, not a general economic crisis. Nic Carter said:

“I'm not shocked when the S&P 500 and Bitcoin recently correlated with each other, although it should be noted that the mathematical correlation of BTC: SPY has decreased since it soared in mid-March. In a rush to liquidate, Investors sold off assets with short maturities to buy long-term assets, to pay for margin orders or mortgage payments, etc. Bitcoin tends to be among the assets that are easy to liquidate and often not held because of tax incentives. Therefore, it is quite reasonable when it is sold by many stressful investors.

Spencer Bogart said that the cross-correlation between assets tends to increase during the liquidity crisis and, in his view, that is exactly what happened in the past month.

“During the worst of the market, everything is correlated when liquidity assets are sold for cash. For example, in the worst times of the market, there aren't any safe havens - even long-standing safe assets like gold and US bonds are sold significantly. With Bitcoin rising YTD and outperforming nearly every major asset (except for gold and bonds), I think its performance shows Bitcoin moving in orbit from the neglected speculative asset to one. currencies and global value repositories ”.

Agree with the opinion of Bogart, one report Delphi Digital recently pointed out that Bitcoin has outperformed all other major asset classes over the past 12 months.

Kevin Kelly said:

“I don't think Bitcoin's initial sell-off move was related to the special market conditions we faced. For example, gold fell 30% in value between March and October 2008 when the stock was destroyed. ”

But is Bitcoin completely correlated?

Bogart and Kelly emphasized that long-term trends are more important than short-term correlations in an economic crisis.

“Most people invest in long-term assets, so the long-term correlation is most concerned. We want to see the benefits of diversification during the holding period, not during each day / week / month of that period. So far, Bitcoin has not correlated with most major assets in the long run. ”

Kelly added that the recent correlation between Bitcoin and the S&P 500 is not enough to invalidate the point of non-correlation of Bitcoin's assets.

Kelly said:

“We have just witnessed the most volatile period of securities for decades with the average daily price movement of 3-5% for weeks. There is almost no asset class that is not under the huge selling pressure often seen in a liquidity crisis, so it's no surprise that BTC was quickly sold alongside risky assets. Historically, volatile market volatility has often coincided with mass Bitcoin and crypto sell-offs. ”

According to Kelly, the lack of historical correlation between Bitcoin and the traditional market is mainly due to the level of investors operating in the crypto market.

"If institutional investment increases in cryptocurrencies, there will also be a correlation between BTC and other assets as sophisticated investors monitor and manage their positions in the context of a multi-asset portfolio., ”Kelly said.

What happens next?

Although it is clear that Bitcoin cannot avoid the economic disaster caused by COVID-19, Bogart sees the potential to shine in the coming years.

“Bitcoin is in a unique position when we expect the worst of the global market to end. While all of the assets are severely affected by the liquidity crisis, Bitcoin is less likely to suffer losses from prolonged economic disasters that are likely to be faced in the coming months or years. When the liquidity crisis is over, like after the 2008 crisis, the marginal investment dollar will find its way to less affected assets and I think Bitcoin benefits from that asset allocation trend. ”.

For Kelly, the way Bitcoin works after the current economic storm will let the world know more about the "digital gold" argument than the sharp price drop that took place last month.

Kelly added:

"The scale of COVID-19 coping policies seems to have been expanded over the timeline in which BTC has to assert itself."

Oil losses 65% of value

If we think S&P has struggled, the oil market has been more turbulent in the past year especially due to the COVID crisis and fight Prices are happening between Russia - Saudi Arabia.

Despite reaching a temporary agreement, oil prices still fell 8.29% today and a whopping 65.41% compared to 12 months ago.

Gold increased the most

There is a Delphi Digital study citing Bitcoin as the best performing asset in the past 12 months but gold today is the strongest asset with 38.24% profit.

Unsurprisingly, traditional investors flocked to gold in uncertain times. Moreover, the supply of gold is increasingly tightening as gold refineries are forced to close due to COVID-19.

However, if we look at the monthly increase, Bitcoin has surpassed gold showing a major recovery since the brutal sell-off. Bitcoin increased 24.9% over a month ago, while gold increased 15.69%.

With many indicators signaling the possibility of Bitcoin's price rise before halving, billionaire investors like Mike Novogratz have said that now is the best time for Bitcoin to prove its value.

As the central bank in the world has more money and inflation inevitably follows, he believes that Bitcoin will double by the end of this year and may even reach new all-time highs.

The same opinion was also agreed by BitMEX CEO Arthur Hayes and believed that prices could drop even more in the context of uncertainty but will end in 2020 at around $ 20K.

You can see the price of BTC here.

Disclaimer: This is not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

Minh Anh

According to AZCoin News

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About My name is Nguyen Manh Cuong. I was born in a poor village in Ba Vi district, HA NOI province - windy and sunny land. Currently. Mr Cuong.
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