ForkLog Hub resident Pavel talks about the relationship of bitcoin with the traditional financial market and gold Gromov, also known as "Chief of the crypt."
For a long time cryptocurrencythe market was independent of the traditional financial sector. But in 2016, the first data appeared indicating a correlation between gold and bitcoin.
This was due to accelerated proliferation.Bitcoin among users. Prior to this, the price moved erratically, and statistically significant information was not enough to assess the correlation. The market lacked participants, so its nature was more manipulative than regular.
Representatives of the crypto community are positioningBitcoin as an asset that is least correlated with the traditional financial sector. They see cryptocurrencies as an alternative to established stock market assets.
Charts over the past few months show that Bitcoin positively correlated with gold, and negatively correlated with stock indices.
Correlation means that there is movement inthe same or reverse directions over a period of time. The correlation value varies from -1 to 1. A unit indicates that the movement of assets completely repeat the friend. The lower bound indicates the opposite: prices are moving in opposite directions. The closer the value is to zero, the weaker the correlation. Zero value indicates its absence.
Bitcoin and Gold
Community representatives, analysts, investors andregulators have been actively discussing the status of bitcoin and for a long time could not reach consensus. Bitcoin was compared with currency, commodity and investment asset. Others even pointed out that the first cryptocurrency is not provided with anything and does not have a base value.
Ultimately, regulators described Bitcoin as a commodity, equating gold. There are all prerequisites for correlating the movement of bitcoin and gold.
The community is of the same opinion: hence the term digital gold. According to analyst Mike McGlone, bitcoin will turn into a digital version of gold in the future. The reaction of the first cryptocurrency to the recent international crisis following the assassination of Iranian general Kassem Suleimani in Baghdad speaks in favor of this.
Other factors support the theory of the correlation of gold and bitcoin. Assets have several common characteristics:
- Limited resources. Like gold, bitcoin has limited emissions. This distinguishes them from fiat currencies.
- Bitcoin mining process and gold requires both resource and financial costs. The complexity of mining both assets makes them valuable and scarce
Statistically significant can be considered the period withbeginning of 2019, when the correlation between gold and bitcoin began to strengthen. It manifested itself strongly against the backdrop of a tense economic and political situation in the world.
The graph shows a strong relationship between assets. In certain periods, the correlation coefficient is close to unity (0.91), which indicates almost a direct relationship.
Consider the different periods and compare the BTC and GOLD charts to see how strong the dependence is.
MAY ━ JUNE 2019
Within two months, the price of bitcoinshowed the most rapid growth in all of 2019. Price rose from $ 5,269 to $ 13,858 in less than two months, reaching an annual maximum. Note how the graph of the gold exchange rate coincides with the schedule of bitcoin.
The rise in the price of bitcoin may be one of the outcomes of the US-China trade war
During the same period, gold reached 6 years.the maximum is $ 1,423. During the indicated period, a steady correlation was observed between the price of BTC and GOLD, which means a direct relationship between the two assets amid the intensification of the trade confrontation between the USA and China.
After a short correction, the price of bitcoinagain fell below $ 10,000, and then quickly recovered and reached $ 12,000. At the same time, the price of gold rose to $ 1,506 per ounce. The main reason for the relationship was another sharp deterioration in the negotiation process between the United States and China, both sides announced the introduction of new trade duties.
How will the Fed rate cut affect the price of bitcoin?
THE BEGINNING OF 2020
The Fed's monetary policy makes it clear thatthe US economy is not in a better position. This led to investor demand for gold, as a result of which it showed the best growth dynamics since 2010 and reached the 2013 mark.
At the beginning of 2020, the conflict between Iran andUSA, and in China, the coronavirus epidemic broke out. Uncertainty on the markets and bring the upcoming presidential election in the United States. Analysts disagree on a fall in US bond yields in 2020.
The cryptocurrency market is also on the verge ofsignificant changes. In May 2020, bitcoin halving is expected, as a result of which the reward for new blocks will be halved.With continued demand, halving will have a beneficial effect on the growth of bitcoin prices.
Since the beginning of the year, the price of bitcoin has risen to $ 10,400,and gold once again updated the maximum - $ 1689 per ounce. Investors again turned to the metals and cryptocurrencies market in difficult political and economic conditions, accompanied by a potential termination of yield on US bonds.
Bloomberg claims asset correlationis stochastic. Almost a year - from August 2018 - a negative correlation was observed between gold and bitcoin 49% of the time. The uptrend coincided 22% of the time, and prices fell in tandem 29% of the time. But the trend has changed significantly.
BTC and Gold are now trading in tandem 58% of the time. Bloomberg warned that such a short period of time does not allow collecting enough objective data to assess dependence. According to analysts, it is not yet possible to say that the correlation indicates a causal relationship.
Nevertheless, the concept of "Bitcoin - Gold"becoming more apparent. The presence of correlation in itself does not have statistical significance, but to some extent reinforces the status of a means of savings. .
Digital Asset Data President Ryan Alfredstated that the results indicate the transformation of bitcoin into a means of saving and make it potentially suitable as a protective asset in the conditions of an unstable economic situation in the world, instability in traditional markets and, of course, in the digital asset market.
Bitcoin and stock market
In a period of market uncertainty, bitcoin and gold are seen as a tool for hedging risks. In a period of positive mood in the economy, investors are returning to traditional markets.
Comparing Bitcoin and Index Price ChartsS & P500 can detect a strong correlation. It is noticeable that the periods of active growth of bitcoin and the index mostly coincide. S & P500 reflects the general condition of risky assets, which also include bitcoin more often.
If bitcoin moves identically with gold during periods of economic and political upheaval, then the movements with the stock market probably just coincide, but have no specific connection.
This season can be divided into two periods: May and June. In May, negative correlation reached a value of -0.73. While the stock market was falling, Bitcoin was growing. The fall in the index was caused by US President Donald Trump's policy on China: he planned to increase duties on Chinese goods and urged US companies to remove production from China.
Investors decided to leave the stock markets and left forgold and bitcoin. But if gold acted as a safe haven asset, then Bitcoin - as an alternative risky asset, which makes it possible to earn instead of a falling stock market.
At the same time, the price of bitcoin moved to an earlystage of upward growth and rushed to a new annual maximum. In May, bitcoin grew by more than 60%, the cost of the S & P500 index decreased by 7%. The May chart indicates that bitcoin was used by investors as a hedging asset against the S & P500 index.
In June, the opposite situation was observed. Amid agreements between Beijing and Washington, the stock market began to recover. Bitcoin also continued to grow.
In the first 10 days of August, bitcoin rushed upand reached the mark of $ 12,000, while the stock market went down as a result of another trump attack on Beijing. Further, the stock market was in a sideways trend for almost three weeks, after which it began to grow again and reached a historic maximum by the end of the year. Bitcoin began to gradually decline and by the end of the year reached $ 7300.
Morgan Creek Digital Co-Founder AnthonyPompliano noted that investors seek to hedge risks against the US dollar. In his opinion, in August 2019, Bitcoin remained an uncorrelated asset.
Fundstrat Global Manager Tom LeeHe is of the opposite opinion and believes that bitcoin is moving along with traditional markets, so it will update its maximum when the S & P500 does it.
Tom Lee says economic growth is needed for bitcoin to grow
THE BEGINNING OF 2020
Since the beginning of 2020, there has been a long-term positive correlation between S & P500 and Bitcoin. Both assets grew during this period: Bitcoin grew by 44% at the peak, while the index showed an increase of more than 4%.
The Fed in recent months has poured $ 210 billion into the market, which exceeds the capitalization of Bitcoin. This has made assets such as bitcoin, indices and gold more attractive for investment.
It is noteworthy that in late February the fallBitcoin coincided with a decline in stock prices. The reason for this was the threat of a pandemic: the US market began to decline after the Asian and European markets after updating the data on the spread of coronavirus.
How an outbreak of coronavirus will affect mining in China and the bitcoin industry
If the movements of gold and bitcoin coincide inperiods of tension, then with the stock market coincidences are random. In May and August 2019, they were opposite, in June 2019 and at the beginning of 2020, they are almost identical.
Despite the fact that Bitcoin is positioned asdecentralized and alternative asset, independent of the traditional financial market, recent data indicate the flow of capital between the traditional and cryptocurrency markets.
However, at the moment it is difficult to determine the goalinvestors who buy bitcoin. As a protective asset (like gold) or as an alternative risky asset (for profit instead of the stock market).
Periodically Logically Correlated Correlationpresent, but still more often with gold. Probably, it is Bitcoin and other cryptocurrencies that can become a refuge for investors during the period of the expected financial crisis. There are no other assets that would allow you to earn in a crisis, being independent of traditional markets.