Is there a correlation between the cryptocurrency and traditional markets?
Crypto correlation with stock market.
In our previous material, we figured out whether there is a correlation between Bitcoin and other coins. We have clearly demonstrated that a direct correlation is observed between almost all digital assets. Somewhere — to a greater extent, somewhere — to a lesser extent. But what is the relationship between the digital asset market and the traditional market? Does this help predict the dynamics of the movement of coins? Let’s get it right.
When Bitcoin was created 11 years ago, it was believed that its main advantage as a new class of assets would be the lack of correlation with other classes of assets. But a decade has passed, and we can say for sure whether this is actually so or not.
A few years ago, digital assets didn’t actually correlate with traditional assets (stocks, commodities, currencies in the circulation of countries). But now a different situation is already observed. Many investors are trying to understand whether it is possible to hedge risks associated with the traditional market with the help of cryptocurrencies.
Based on last year’s data from reputable publications, we’ll try to discover the connection of Bitcoin with other markets. JPMorgan analysts conducted a detailed analysis, during which it turned out that over the past five years, the correlation of Bitcoin with the S&P 500 index, US government bonds and gold has been at zero level. Studies have shown that the volatility of digital assets is significantly higher than that of stocks (which, incidentally, was already understandable). Experts concluded that “it is not known how the coins will behave during financial turmoil, but they can be used to diversify due to the low correlation with stocks and bonds.”
However, this is not the only opinion. For example, analysts at Bitwise Asset Management, on the contrary, believe that the correlation between the two markets is only growing from year to year. They found that the correlation of Bitcoin with stocks and bonds is 0.12 and 0.25, respectively (as you remember, the ideal case is +1). For comparison, we can cite their data on the correlation of US and global stocks. Here the indicator is 0.88.
Sifr Data found a negative correlation between Bitcoin and the S&P 500 index (-0.27). This tells us about their weak correlation. For gold, the indicator is even lower (-0.1 — both types of assets are neutral to each other). By the way, experts consider their information closer to reality. We told you about this when we analyzed the correlation table of digital currencies.
Blockforce Capital, an American asset management company, also revealed a slight correlation between Bitcoin and Standard & Poor’s 500.
Crypto correlation with stock market. The low correlation has its own reason: the growth factors of the two markets are different. In the case of traditional markets — economic growth, interest rates, corporate profits. And for cryptocurrencies, legislative changes and investor confidence are important.
However, digital assets continue and, most likely, will continue to be popular with investors. Due to the low correlation with traditional markets, during economic and financial shocks, investors invest a certain part of funds in this sphere, since such a maneuver often saves investors from huge losses.
Some experts believe that the cryptocurrency industry will undergo major changes in the future. Tim Enneking, managing director of Digital Capital Management, claims that after institutional investors enter the digital currency market, they will become more like securities.
