Many investors believe that Bitcoin follows the fate of the stock market generally. However, over the last year, this trend has changed remarkably. In the last 12 months, Bitcoin has not exceeded a correlation above .3 and lower than -.3 when compared to the USD, gold, and the S&P 500.
The analysis reveals that Bitcoin is beginning to create its own financial ecosystem. Investors moving into the space are doing so without specific correlation to the wider stock or commodities markets.
1/ Amidst a sea of volatility
We can describe volatility as how much the value of an asset changes over a given time. A volatility index... More and rapid re-allocation to safe haven assets, crypto markets have been relatively unfazed, if not even a bit bolstered. In fact, there are a number of macro tailwinds set up to produce new demand for an alternative financial system.
— Max Bronstein (@max_bronstein) March 6, 2020
Stock tank
The stock market has seen a radical price reduction over the past two weeks, as fears of coronavirus and recession have raged. Traders have sold out of positions rapidly, and the market has seen unparalleled volatility.
Additionally, 10-year Treasury bond yields have dropped to historic lows, reaching just .667% on Friday. Traders had run into the position for safe-haven status, indicating that markets were unwilling to bear risk of any kind.
Even a Federal Reserve emergency rate cut made little impact, as the tide of fear in the market swept through prices. The weeks to come, which traders anticipate will include another 100 basis point reduction, may have little effect as well.
The only solutions are economic stimulus packages – quantitative easing, tax cuts, bailouts, etc. All of these solutions require cash, and with liquidity low will require currency devaluation to maintain.
Digital currency Bitcoin
As the balloon of fiat currency begins to leak air, digital currency Bitcoin has begun to step into place. The power of a digital currency that allows for transactions but is not connected to sovereign nations is only beginning to be seen.
The fact that the Bitcoin price has been relatively stable compared to stock and bond rates is an indicator. It reveals that traders are seeking places to put funds that will protect them from the broader economic chaos.
Such an influx of funds would quickly send prices up, particularly with the halving approaching and the limited supply.
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