What is the fact that Bitcoin is linked to other financial markets?
Bitcoin investors and speculators are looking for the most important tools and indicators that help them read the movement of Bitcoin, and many wonder about the extent to which Bitcoin is linked to other markets, including stock markets, and how it affects it?
Bitcoin is seen in many different ways for some, bitcoin is a ship of speculation and investment, for others it is a counter-control exchange, free of transfer fees and far from complex procedures when sending money across borders.
Bitcoin, in essence, can be better described as an alternative monetary system that provides monetary autonomy to people.
This view reinforces the narrative that cryptocurrency acts as a precautionary asset or “digital gold” designed to withstand the turmoil of global economic crises.
This novel, first drafted during the 2008 financial crisis from which Bitcoin was born, is now being tested.
However, after the market crash on March 12 as a result of the Coronavirus epidemic, the price of Bitcoin was not far from the effects as the stock market went down and also fell to half its price.
In fact, bitcoin’s association with other major assets has reached new record highs, and in particular, market analysts have pointed to the S&P 500 index, an index of 500 U.S. companies that is often treated as a synonym for the u.S. stock market rhythm, and earlier there was no correlation between Bitcoin and the S&P 500, according to data from CoinMetrics.
Currently on a scale of 1.0 to -1.0 (1.0 means that the display material is fully interconnected and -1.0 means they are not connected at all) the bitcoin and S&P 500 link ratio is at 0.16.
For most of bitcoin’s small life, the link between the big cryptocurrency and the S&P 500 was largely negative until 2017.
For the general picture, gold and Bitcoin usually have a negative relationship with stocks, for example, in the wake of 2008, gold’s correlation with the S&P 500 was -0.89.
Even during Black Thursday (March 12), we saw that the price of gold was affected by all other major assets, however, and for market analysts, this was not surprising, given that the record sell-off on Black Thursday meant that investors were liquidating everything for money including safe haven.
This included gold, especially bitcoin, which has fewer trading restrictions and can be easier to filter than its predecessor.
As for bitcoin’s relationship with gold, this ratio has been on a steady rise since July 2017, when the link fell from an all-time high of 0.23 to a low of -0.11, according to Coin Metrics.
It has since recovered, although the link is not as strong as the Bitcoin and S&P 500, but it is still positive at 0.04.
In the area of negative correlation, Bitcoin’s correlation with an index that measures stock market volatility is heading towards new lows.
Bitcoin’s VIX volatility ratio is -0.12, if it falls lower, and will exceed the lows it reached at the beginning of 2018 and 2019.
For Bitcoin holders, these may not be the numbers they hope to get from a highly volatile asset that is supposed to be a hedge against another volatile market.
There is some good news that Bitcoin supporters may be happy with, as Bitcoin is negatively linked to The DXY Index, the dollar index that tracks the dollar against a basket of other currencies.
The bad news is that the purchasing power of the dollar has been boosted by the international community’s influx of The United States currency for fear of global economic instability.
Cash is the king today, but it is too early to get rid of bitcoin being a hedge asset.
In the case of more extreme use, Bitcoin is an insurance policy against the collapse of financial systems, economies and political systems.
The current crisis began just a month ago, and this economic downturn may have just begun, and these linkages may look quite different in the coming months.
After all, gold fell sharply at the beginning of the 2008 crisis but broke away from stocks shortly afterwards.
Does digital gold chart the same path as gold in the past?