A recent report from institutional crypto firm Fidelity Digital Assets concluded that Bitcoin (BTC) shows a very weak price correlation with dominant financial assets based on data from the last five years. During 2020, Bitcoin gained more acceptance in regular financing, which can logically affect the asset’s relevance or lack thereof. Will the bitcoin correlation change in 2020?

“Bitcoin has seen higher positive correlations with other assets over shorter periods of time, especially during periods of uncertainty and turmoil, and even up to 2020.”

Amid growing concerns about COVID-19 and preventive measures that began in March 2020, the bitcoin price has fallen and appears to be in line with the US stock market. “The increase in the correlation between bitcoin and other assets was the result of a short-term liquidity crisis that affected several asset classes,” said Puttoria. In fact, a large number of people rushed to sell their financial assets for cash when time became hesitant with news of the COVID-19 pandemic. She added:

As a result, the ratio of all these assets to each other increased. For Bitcoin, another potential reason may be the increasing overlap in market infrastructure and between market participants in traditional and digital asset markets.
For October, Fidelity released a detailed report entitled “Bitcoin Investing Thesis: The Role of Bitcoin as an Alternative Investment.” The report, written by Putoria, addresses a number of issues. Part of the report pointed to a lack of correlation between Bitcoin and other financial assets, including US equities and gold. Correlation is a controversial topic in the crypto industry.

Using data from January 2015 to September 2020, the Fidelity report concluded that Bitcoin’s performance was different from its main assets, indicating little or no correlation with other markets over this time period. BTC scored 0.11 in the range of -1 to 1. Using a rating of 1 means that asset prices are exactly the same, and a rating of -1 means exactly the opposite price movement. Every asset with zero valuation follows its own price path, which is not affected by the movement of others.

Apart from the fall in March, several other cases have shown clear connections between bitcoin and traditional markets, at least at certain points. Acceptance can play a role in the equation, making Bitcoin more interconnected than in previous years – an aspect highlighted in the Fidelity Report. “Bitcoin is a modern resource that until recently was not linked to traditional markets,” the report states, adding: “Through its integration into institutional portfolios, it can become increasingly linked to other assets.

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Bitcoin became widespread in 2020. One sign is that a number of traditional financial players, such as MicroStrategy, have gathered large positions in bitcoin. PayPal recently announced plans to add Bitcoin to its platform in 2020, bringing the original into the spotlight.

“Bitcoin’s long-term correlation with other assets may continue to decline given the different risk and return factors of Bitcoin compared to other asset classes, dynamic utility cases and descriptions,” Puttoria said, adding more:

“If investors with longer time horizons and convictions place bitcoins, the peaks in short-term liabilities with other assets in times of uncertainty may also subside. These are assumptions that we will continue to update as more data becomes available and a better understanding of Bitcoin’s behavior in a protracted crisis. ”
Over the years, other industry participants have also taken into account the price of bitcoins in line with prices in other markets. Anthony Pompigliano, co-founder of Morgan Creek Digital, is a longtime supporter of Bitcoin as an unrelated asset.

“All assets are heading towards correlation 1 in a liquidity crisis,” Pompigliano told the Cointelegraph in an email that also agrees with Poutoria’s explanation. He added:

We saw a liquidity crunch earlier this year, so it is only natural to expect that the correlation will strengthen at this point. We have seen a link in recent weeks, and I think we will look back to low / zero correlation in the coming months. ”
Prior to Bitcoin’s launch in 2009, the financial crisis of 2007-08 caused similar liquidity problems. Since people often compare Bitcoin to gold, look at the perspective of gold during this crisis.

Source: CoinTelegraph