[ad_1]
Cryptocurrency trader Scott Melker says that while stocks and Bitcoin (BTC) appear to be moving in tandem since Black Thursday: “They are not correlated assets.”
in a Twitter thread To his 84,000 followers, “The Wolf of All Streets” outlined his theory as to why Bitcoin will go its own way during the financial crisis. Melker has analyzed the price of BTC since its inception in 2009 and compared it to assets in legacy markets such as stocks. According to Melker, the cryptocurrency has only moderately correlated with traditional markets for a short period.
The story tells the story
As Melker explained in detail, “You can compare 2 assets on a scale of -1 to 1. 1 means correlated.”
Data from eToro’s newly released Q1 2020 report found that BTC and SPX (Standard and Poor’s 500 Index) had a correlation of 0.59 in February 2020. Once the pandemic took over, cryptocurrency “was significantly correlated more with gold than with [SPX]”, Achieving a correlation of 0.72.
What about the recession on March 12?
While the numbers may vary, they do not invalidate Melker’s argument. BTC bottomed out on Black Thursday in mid-March, but SPX didn’t follow until more than a week later. Melker said traders should take note of the difference between the performance of cryptocurrencies and traditional markets during this period:
During that 9-day period, Bitcoin increased while SPX decreased. In a big way. Bitcoin was up 84% in that time. Believing they are directly correlated would mean Bitcoin was leading the market. “
Source: Twitter
Why should investors still look at Bitcoin?
Given the risks with equities in what the IMF predicts will be the biggest recession since the Great Depression, if Bitcoin is uncorrelated with equities then it could be a good way to diversify an investment portfolio. Bitcoin may not be the safe haven that was touted, but it offers a different risk profile.
“By definition not correlated [to these markets]Melker wrote:
“This is why all investors should have some Bitcoin: It offers idiosyncratic risk rather than systematic risk like other assets. Even if it is a RISK asset, having it in a portfolio reduces the overall risk of the portfolio due to this lack of correlation. ”
[ad_2]
