One of the most common arguments in the Bitcoin space is that it is completely uncorrelated to other financial markets. Since crypto-currencies are mostly separated from normal economic trends, it was for many to believe easily that BTC from, say, a recession is not affected.
In the last few months, this story has suffered, but rather of credibility.
In March and April, BTC and the S&P 500 were traded with a very tight correlation. Whenever the stock market recovered, recovered BTC and the price movements correlated eerily by the Minute.
Many viewed this as bearish as one of the most deadly features of Bitcoin, namely, to be “uncorrelated”, has proved to be wrong. But it could actually be a good thing. And that is the reason.
Correlation between Bitcoin and S&P500 is not necessarily a bad thing
The correlation of Bitcoin with shares is made after the decoupling, for the most part of may and the first half of June again.
As Digital Asset Manager, Charles Edwards, recently commented: “correlation of Bitcoin and share in the year 2020. We have (unfortunately) to 10. June is “disconnected”. The correlations have reached all times highs. You recognize the Trend? High levels of anxiety and uncertainty (e.g., VIX) = high correlations.“
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However, this is not a bad thing, as one Analyst commented.
As the pseudonymous Analyst “PlanB” explains, has Bitcoin a 95% (R-square) correlation with the S&P 500 and is cointegrated with this, which means that BTC “is not a uncorrelated asset”.
He noted, however, that BTC would benefit if the fed supports stocks through monetary incentives, a record level.
The Analyst in relation to the recent policy of the Federal Reserve:
“Yes, the FED tried in November 2018, to stop QE, the impact on S&P and BTC were similar disastrous. The FED will never do that again. IMO there is no going Back, it’s QEternity“
Larger up spot target as a share
Even if Bitcoin likes to follow the Trends of the S&P 500 and other markets, it does not mean that the upward trend of BTC is limited to the shares.
Paul Tudor Jones, a billionaire Investor who is widely considered to be one of the best macro-analysts in the world, writes in a research note in may: Bitcoin is compared to Gold, stocks, bonds and other asset classes, the “fastest horse in the race”.
Jones calls the shortage of 21 million Coins for Bitcoin as one of the main reasons for this is that the crypto-currency could much enhance faster than other asset classes.
Raoul Pal has dampened this optimism.
The former executives of Goldman Sachs said at a Bitcoin Podcaster that BTC in the 2020s, just as in the last decade, will be the best asset class. He attributes this feeling to his mind that stocks, bonds and real estate in comparison to crypto-currencies in the long run are extremely overrated.