The topic of Bitcoin's correlation with other assets or markets comes back into the living rooms from time to time. The relationship between two assets, as defined by the concept of correlation, means that by knowing the value of one asset we are able to predict the value of the other asset. Of course, the use of correlation as a determinant of value requires several or more conditions to be met. Let's now consider what the correlation of Bitcoin with other assets or financial markets in the world might look like. Do we have any basis to talk about any correlation at all? Or maybe comparing BTC to other variables is FUD. Idea cuts the umbilical cord from the markets? The first important aspect of our argument will be to refer to Bitcoin's whitepaper, or rather to the ideas represented by BTC. Bitcoin as a pioneering cryptocurrency is not controlled by any governments or centralized companies. In theory, the BTC exchange rate should follow its own path, independent of other currencies and markets. Recently, we have witnessed sudden declines, both in traditional markets and in the cryptocurrency market, including Bitcoin. These events provide us with a lot of data to analyze. Since Bitcoin has never witnessed similar events before, no one can predict how the most popular cryptocurrency will behave. Well-known analyst and trader Tone Vays in a commentary on March 18 said: "I think bitcoin has a correlation with traditional stock markets because both are private assets." Certainly Vays is suggesting the latest data. So let's put ideas aside and analyze the available data. In the chart above, we see a comparison between the Bitcoin (BTC) price and the S&P500(SPX) index since the beginning of 2020. The SPX index is marked with a blue line. Chart created on TradingView using a 1D timeframe and an embedded CC indicator. The correlation coefficient shows a high positive correlation since the beginning of 2020. We saw a similar situation in 2018, when the S&P500 index fell 10.2%. Throughout this time, the value of Bitcoin has also fallen by 25.7%, and in fact has fallen by over 50% from its peak in January 2018. We can see that the correlation is strongest when both Bitcoin and the stock market fall. The correlation is only greatest when there are sudden declines. Most of the time, Bitcoin's reaction to market events is the opposite. Bitcoin "walks" its own paths Bitcoin's correlation with traditional markets is not always positive. In its article Cointelegraph, analyzed the charts of Bitcoin and the S&P500 in 2018-2019, and you can see on them the fundamentally different reactions of the BTC price against the American index. At times, Bitcoin did not react or acted in the complete opposite way when the S&P 500 moved sharply. At other times, the two seemingly moved in correlation. Beginning in 2018, BTC and SPX prices saw declines. Between February and September, the S&P and Bitcoin correlation moved significantly closer together. The traditional market index gradually rose to new highs, while the BTC price fell more than 40% between March and September 2018. On September 21, the S&P was oscillating around record highs and Bitcoin was hovering around $6,000. In May 2019, both assets behaved very differently. The S&P was diving by 7% while Bitcoin was rising at a record pace of over 70%. Bitcoin's inverse correlation continued until July. In recent days, Bitcoin has been following its own paths, posting significant gains. The best commentary to explain the correlation between Bitcoin and other assets are the words spoken by Morgan Creek Digital founder Anthony Pompliano: "I don't hear many people today screaming about" BITCOIN IS CORRELATED! " and another statement: "The truth is that correlation doesn't matter for a short time. For months and years, bitcoin remains an uncorrelated stock. " Correlations create financial institutions If Bitcoin is not correlated to any asset: gold or stocks, why some people are of a different opinion ? Probably it's the institutional investors who, long ago, discovered the huge trading potential in Bitcoin. On the one hand, they "pump" huge funds into the cryptocurrency market, on the other hand, they are very "skittish". The recent declines in the price of Bitcoin seem to confirm this theory. On March 12, Bitcoin's market capitalization fell by $53 billion. Panic on global exchanges, probably caused massive withdrawal of capital by institutional clients, also from the cryptocurrency market. Opinions on this topic are divided. Tags bitcoin bitcoin vs. gold bitcoin correlation
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