In recent years, there has been a struggle in the mind over whether the price of bitcoin is related to other financial assets such as stocks. A recent report from Fidelity Digital Assets clarifies the controversy.
The long fidelity report, entitled “Bitcoin Investing Thesis: The Role of Bitcoin as an Alternative Investment”, not only shows a lack of correlation between the price of Bitcoin and the prevailing financial assets, but also shows higher returns for BTC investors over a long period of time. . term time horizon.
“The correlation of Bitcoin with other assets from January 2015 to September 2020 (shown in the table below) is on average 0.11, indicating that there is almost no correlation between the performance of Bitcoin and other assets.”
The report explains that a 0.11 correlation exists on a scale from -1 to 1, with a score of 1 indicating perfect correlation and -1 indicating opposite price movement. For example, if bitcoin had a score of -1, the price of the asset would rise when the stock fell. The score 0 means that other active movements do not affect the bitcoin price.
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In recent years, Bitcoin seems to have followed a path that has at times followed the regular markets. BTC was dumped together with shares in March 2020 during the first COVID news. However, the digital asset recovered faster with higher relative returns. Bitcoin has recently fallen slightly relative to equities due to news of deferral of stimulus financing.
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But despite these short-term effects, according to Fidelity, “Bitcoin has clear foundations that are unaffected by the health and economic situation created by COVID-19.”
In its report, Fidelity pointed out that Bitcoin’s disconnected nature may be due in part to a new era of social media-driven retail interest in investing.
The report also discusses the fact that Bitcoin has a number of stories of interest to various investment circles, and claims that despite the controversy over whether Bitcoin is a store of value or a means of exchange, “one of the great things about Bitcoin is that its success does not depend on to serve one purpose. “…
The price of a digital asset has risen over the past decade, surpassing parity with US dollars, gold and other benchmarks, as previously described by the cryptanalyst and creator of the commodity allocation model. Along the way, the perception of Bitcoin by some people has changed from a transaction currency to a store with value.
Bitcoin’s age also plays a role in the lack of correlation. The report states that “Bitcoin is an emerging resource that until recently was not associated with traditional markets.” “As they integrate into corporate portfolios, they can become increasingly tied to other assets.”
Major Bitcoin trading products have entered the crypto space since the launch of the Bitcoin Futures Trading product on the Chicago Mercantile Exchange in 2017. Since then, bitcoin options have also appeared in the regular market. As the Fidelity Report points out, correlations may begin to emerge, and they may now appear in part in CME bitcoin gap theory, which many cryptocurrency traders place great emphasis on.
Overall, however, Fidelity notes that there is no overwhelming correlation with crypto asset prices, citing a Yale University study that looked at several cryptocurrencies, including BTC and Ethereum (ETH).
Based on the analysis, the directional behavior of all digital assets, including bitcoin, cannot be explained by risk factors representing the return on stocks, currencies or precious metals, or by macroeconomic factors such as volatile consumption growth, constant consumption growth and industrial production growth. And the growth of personal income. ”
Anthony Pomplano, co-founder of Morgan Creek Digital and a crypto-industry expert, has on several occasions spoken of Bitcoin as an unrelated asset. In an uncertain global environment, such an asset can be a hedge, at least according to MicroStrategy, a major financial player that recently invested $ 400 million in BTC.