Bitcoin will thrive after the Corona pandemic just like gold did in previous crises

Bitcoin shows a strong correlation with the US stock market in about two weeks from March 12, raising investors' concerns that cryptocurrencies are also as vulnerable to financial crises as stocks. and other high-risk assets.

A study from a Swiss bank startup Seba Having raised $ 103 million in 2018, it shows that gold behaves similarly to Bitcoin in previous crises. However, over time, gold has exploded from its correlation with the stock market and Bitcoin could do the same.

There is still room for Bitcoin to act as a safe haven asset

For example, in the 2000 Dot-com bubble, gold prices moved parallel to the stock market about 3 months before the correlation was broken.

After the initial panic phase when most investors and large organizations sold their assets, the market stabilized and gold started to see an uptrend.

Saba's research says:

“Gold works in different ways during the three crises. The correlation between gold and S&P spiked during the crisis, however, in the long run, there is no doubt that gold's position as a diversified asset. Over the past 30 years, the correlation between gold and the S&P 500 has averaged -0.05 ”.


The correlation between gold and the S&P 500 in the Dot-com bubble period is similar to that of Bitcoin | Source: Seba

Besides, follow report The new Gabor Gurbacs from VanEck, Bitcoin's correlation with gold has reached a level of 'unprecedented' in the COVID-19 crisis.

Gurbacs confirmed this proves that the safe-haven feature has been strengthened following suspicion in the latest sell-off.

“We conclude that although the long-term correlation with traditional assets is still low, a short-term sell-off in the market due to COVID-19 increases the possible correlation between Bitcoin and gold. Bitcoin's ability to show a safe haven status. ”

Gold has behaved similarly to the way Bitcoin prices move when the U.S. stock market collapsed following a spike in the Corona epidemic in the United States.

Bitcoin dropped as the Dow Jones slipped, even in pre-market trading and it recovered when the Dow rose again. But, eventually, in less than 2 weeks, the correlation disappeared and the price of Bitcoin began to rise despite the downtrend in the stock market.

Observing the low correlation between Bitcoin and the stock market so far, the researchers at Seba said:

“After a recent sell-off, the correlation has shrunk. This behavior is similar to what we have observed with gold and the S&P 500 in the Dot-com bubble explosion. Therefore, Bitcoin offering a diversified product based on high correlation bursts is a good strategy in our opinion. ”

Currently, Bitcoin's market cap is hovering around $ 123 billion. That is lower than most large corporations in the United States

As Bitcoin's market capitalization increases with stronger infrastructure and larger investor base, it is likely that volatility and correlation with the wider financial market will decline.


The correlation between Bitcoin and S&P 500 | Source: Seba

Bitcoin's long-term future will be bright

Seba's article emphasized that the correlation between Bitcoin and the stock market in the second half of March shows the bright long-term prospects of BTC.

“The external cash characteristics of Bitcoin combined with the ability to continue operating in phases when the price is still low and the demand for stablecoins is not affected even after the recent collapse shows a long future. The length of the field is still intact. ”

After the Bitcoin price crash to $ 3,600, many investors turned money to stablecoins instead of completely withdrawing capital from the exchange, which showed that investors were ready to enter the market during the time. next time.

Bitcoin is trading accordingly close traditional property

As John Bollinger explained, all assets are highly correlated in such a black swan event. Meanwhile, cash became king because it was considered the only flight to a safe place.

Bitcoin's recent correlation with U.S. stocks also reached new all-time highs. Bitcoin has struggled to separate from the stock market since the onset of a viral sell-off.

On April 2, BTC soared to nearly $ 7,300 in an oil war halt but quickly fell back.

Another egg in your investment basket

However, despite the tightening of liquidity caused by the disease, Gurbacs concludes that long-term correlations with traditional assets are still quite low. This means investors can consider adding BTC to their portfolios for diversification purposes.

In fact, it is estimated that only a few BTC can significantly reduce the volatility of a traditional 60/40 portfolio including stocks and bonds.

"We have also considered the addition BItcoin at 0.5%, 1% and 3% allocation rates compare to 60% of equity / 40% of bonds in the portfolio. Just a few Bitcoin maybe significantly reduces fluctuations (measured by standard deviation) of category 60-40.

Notably, news said The Vanguard Balanced Index Fund has fallen 22% from its high in 2020, far exceeding Bitcoin's 10% annual loss.

Thuy Trang

According to AZCoin News

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