Since its inception, Bitcoin has been referred to as “digital gold” since it is durable, expendable, divisible, and scarce as the precious metal.
However, while gold has a solid record of recovery in times of stress in global stock markets, Bitcoin has yet to build a similar reputation as a safe asset.
In fact, in recent months, the cryptocurrency has increasingly been correlated with the S&P 500, the equity index, and the Wall Street benchmark for global stock markets. Now, the data suggests that the relationship is stronger than ever, likely affecting its appeal as digital gold.
The month-long bitcoin-S & P 500 realized the correlation rose to a record high of 66.2% on June 30 and stood at 65.8% on Thursday, according to cryptocurrency derivatives research firm Skew, which started tracking the data in April 2018.
While the bitcoin and S&P 500 correlation is always a very good indicator of market movement, it never actually maintains a consistent position. Bitcoin behaves more like a highly leveraged position and follows market trends in a more volatile and dramatic turn up and down, “said Wayne Chen, CEO and director of Interlapse Technologies, a fintech firm.
The one-month metric largely ranged from -30% to 50% for 12 months before reaching record levels above 60% on June 30. The data shows that Bitcoin’s correlation to the S&P 500 is somewhat inconsistent.
The one-year correlation has also increased to lifetime highs above 37%, according to Skew. However, it must be taken into account that the readings between 30% and 50% imply a relatively weak correlation between the variables.
Bitcoin, by all accounts, remains a risky asset. Despite those who can tout its fundamental similarities to gold, it has not yet been proven to be sufficient coverage or a flight to safety in times of risky sentiment, ”said Matthew Dibb, co-founder of Stack, a provider of trackers. of cryptocurrencies. and index funds.
Risk assets are those with fortunes linked to the state of the global economy. For example, stock prices and industrial metals like copper tend to rise when the world economic growth rate is expected to rise and falter during an economic slowdown.
Bitcoin has more or less behaved like a risky asset this year. The price of the cryptocurrency fell from $ 10,000 to $ 3,867 in the first half of March, as global stocks tumbled amid fears of the coronavirus. It then rose again to $ 10,000 in the next two months as the S&P 500 saw its fastest recovery on the recorded bear market.
However, being treated as a risky asset can be a blessing in the guise of bitcoin.
“Given that the correlation between BTC and stocks is still so high, our expectation is that this will only be optimistic for the bitcoin price in the short term, as global markets benefit from an unprecedented amount of monetary stimulus,” he said. Dibb.
In fact, the United States Federal Reserve (Fed) and other major central banks are injecting massive amounts of fiduciary liquidity into their respective economies to counter the COVID-19 slowdown. As of last week, the Fed’s balance sheet size was $ 7.01 trillion, 67% more than $ 4.24 trillion in early March, according to data provided by the St. Louis Federal Reserve.
HODLing keeps increasing
While Bitcoin is struggling to establish itself as a safe haven asset, some investors remain undeterred.
Bitcoin’s long-term “HODLers”, measured by the number of addresses bitcoin stores for at least 12 months, rose to a peak of 20.3 million in June. That surpassed the previous high of 19.52 million reached in May, according to IntoTheBlock, a blockchain intelligence company.
With the halving recently, many headlines believe Bitcoin’s average price should be much higher than its current value. This creates a more hodl behavior until the market starts generating steam again, “said Chen.
The metric set a new record for the twelfth consecutive month in June. It should be noted that the number of holders has increased by 22% year-on-year, despite the fact that the price of bitcoin has dropped by 25% during the same period.
At press time, the cryptocurrency is trading at $ 9,110, having fallen to lows near $ 8,930 during US trading hours on Thursday.
Divulge: The author does not possess cryptocurrency assets at the time of writing.
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