In a time where the global markets and commodity stakes are in a real state of turmoil, and even Bitcoin is showing incredible volatility, there is a constant desire to try and draw parallels between the nascent digital currency market and that of more established ones.
There has already been evidence that the Bitcoin market was somehow correlated to the stock market as the coins fell dramatically on the same day that the stocks crashed in mid-March. However, Bitcoin has also shown its potential to be a hedge in growing in reverse correlation to the stock market and showing more signs of being like Gold.
The latest report from fund manager VanEck Global suggests that the correlation between Bitcoin — the digital gold — and the precious metal is growing in this time of heightened market flux. In the short term, VanEck has deduced that the correlation between Bitcoin and Gold is higher, because of the Covid-19 induced panic, but long term, it is still low.
“Short-term, the market sell-off induced by the COVID-19 pandemic increased bitcoin correlations with traditional asset classes – particularly gold, potentially hinting at Bitcoin’s increasing safe-haven status.” – The document reads.
A real safe haven?
Bitcoin’s potential to be a safe haven in this time of increased market panic and fear has been severely tested in the early stages of 2020 with no real conclusion being drawn. When the global markets started showing signs of cracking, the hopes turned to Bitocin to shine, but the coin failed at the first hurdle.
“Looking at more recent correlation data, we note that bitcoin’s correlations with traditional asset classes have begun to increase during the COVID-19 induced global market sell-off. Most notably, bitcoin’s correlation with gold has reached levels never before seen,” the VanEck report read.
It now appears as if the want of institutional interest saw money being pulled out of Bitcoin rapidly when the markets came under pressure as investors saw it as a risky asset rather than a safe haven.
However, the aftermath still sees the global markets under strain as the pandemic worsens, especially in the USA, but at the same time, Bitcoin is showing good recovery having topped $7,000 after reaching a low of $3,800. This makes it more amenable to being a safe haven asset, much like gold has proven to be over the years.