Bitcoin lives up to its reputation as an uncorrelated asset. Its price performance is almost as independent of traditional markets as that of gold. Bitcoin also competes with traditional investments in terms of volatility.
When you hear the great healing promises of Tim Draper and other Permabullen, there is a common thread: With the institutional investors, the big money should come in Bitcoin and the cryptocurrencies. So it’s no wonder that quite a few follow the SEC’s back and forth regarding the ETF closely. In fact, in recent years the crypto market has been enriched with a new narrative: Bitcoin is not only a means of payment or a store of value but also an uncorrelated asset. This low correlation with traditional markets such as the S&P 500, the DAX or the Dow Jones suggests that Bitcoin and other cryptocurrencies are a good tool for diversification. The benefit in terms of diversification depends on the low correlation.
Another factor that deserves attention when looking at institutional investors is the volatility of cryptocurrencies. The high fluctuations in value at the end of 2017 and the beginning of 2018 were a sign of a highly speculative market. This was and is very interesting for traders, but such an investment is less suitable for long-term institutional investors. The declining volatility, especially of Bitcoin, is, therefore, a second monitor worth following.
In this new column, we would, therefore, like to follow these two variables on a weekly basis. We look at last month’s correlation, a moving correlation and a moving volatility. The last two values are calculated for each day on the basis of the last 30 days.
Adaptation or disinterest? Volatility from Bitcoin to the lowest level
The decreasing volatility of Bitcoin has been a topic on BTC-ECHO several times. Specifically, it reached a low in October and is only slightly above that of oil:
Although Bitcoin is still well above that of gold, it almost fell below that of oil at the end of November. The volatility of the S&P 500, DAX and Dow Jones indices also rose almost to the level of Bitcoin. Is this only attributable to the bear market or do cryptocurrencies define themselves as an institutional asset class? The future will show that, and interest is certainly there. And if the crypto sector continues to remain uncorrelated, this interest will continue to rise.