Bitcoin first became big news in the mainstream media when it emerged that people who had been holding onto the coin since the early days were now suddenly millionaires as the price of Bitcoin skyrocketed. Things have changed somewhat in the narrative now as the mainstream has got more involved.
Bitcoin has become a popular trading asset with crypto enthusiasts and the “Wall Street” type alike. Paul Tudor Jones has spoken of its value and the growth of the derivatives trading space also talk to the power of this volatile asset as a new asset class.
However, there is no getting away from the fact that one of the most popular methods to make money off of Bitcoin is to simply ‘Hodl’. The ability of the coin to act like a digital gold and accrue value is what makes it so prized — or is it?
Comparisons with the traditional markets are showing an interesting picture of a correlated asset. This also goes against what Bitocin is supposed to be about — a hedge against the normal way of doing things and an anti correlated asset.
But this is not the case as a side-by-side comparison of Bitcoin and other assets is laid out.
Joe Weisenthal, from Bloomberg, has outlined this correlation and defined why it is an issue for Bitcoin.
“I continue to be astonished by charts like this one. Here’s a look at Nasdaq 100 futures vs. Bitcoin over the last couple of days, and as you can see they display a shocking degree of co-movement. Both plummeted around 8 a.m. Eastern Time yesterday before bouncing back a little bit in the morning, and then plunging again in the afternoon. Both made their lows just a little bit after 4 p.m. and then as of 4 a.m. this morning, both had started to rebound in decent fashion,” he wrote in reference to the chart below.
One of Bitcoin’s big selling points is its diversification benefits, but these days it’s almost tick-by-tick just your standard risky asset. It could be a cloud stock or Tesla. Or heck even gold. In fact, here’s a chart from Coinmetrics (via Alex Thorn) showing the 60-day correlation between Bitcoin and gold having surged lately,” he added in reference to the chart below.
“One might say that, well, Bitcoin is still an uncorrelated asset generally, it’s just that 2020 has been an exceptional year. And that’s true. Except that exceptional years are precisely when you want actual diversification. Nobody needed diversification in 2019 when things just went up,” he concluded.