- As more investors delve into cryptocurrencies and decentralized finance, the largest digital token, bitcoin (BTC-USD), appears to be evolving as a beast of its own as its correlation with other risk assets seem to be relatively low, though arbitrarily high from time to time.
- Bitcoin (BTC-USD), with an $897.73B market cap, looks to close out 2021 with a ~75% gain in price, compared with the S&P 500 index (SP500) +30%, Gold (XAUUSD:CUR) -3.5%, the trade-weighted U.S. dollar +6.1%, the long bond (NASDAQ:TLT) -5.8% and consumer price inflation +6.9% Y/Y in November.
- With regards to E-Mini S&P 500 futures, the “correlation between #bitcoin and $ES_F over the past 4 months has been 0.4 and highly statistically significant,” Mark Dow, global macro trader wrote in a tweet on Dec. 27.
- The “rolling 120d correlation between S&P 500 and #Bitcoin remains in positive territory and continues to pick up,” implying BTC acts as speculative risk asset at times, Charles Schwab Chief Investment Strategist Liz Ann Sonders wrote in a tweet on Dec. 20.
- Still, this week, the S&P (SP500) continued marking new record highs, while bitcoin (BTC-USD) continues to drop from its all-time high of $69.4K per token in mid-November, now changing hands below $47.8K. BTC is off 7.4% in the past five sessions, while the S&P gains 1.4%.
- Of course, there are individual bitcoin-related stocks that tend to act as a proxy for BTC price action, and therefore volatility. Some of these names include: Grayscale Bitcoin Trust (OTC:GBTC), MicroStrategy (NASDAQ:MSTR), Osprey Bitcoin Trust (OTCPK:OBTC) and ProShares Bitcoin Strategy ETF (NYSEARCA:BITO). Meanwhile, “HODLers counting on institutional demand to drive #Bitcoin prices higher should be very concerned about GBTC’s near 20% discount to NAV,” Euro Pacific Capital Chief Economist and Global Strategist Peter Schiff, who is known to be a crypto skeptic, wrote in a tweet earlier this week. “Such demand, if it even exists, will be diverted to #GBTC instead of Bitcoin. Once the biggest Bitcoin booster, GBTC is now the biggest drag.”
- Following the arrival of the first Covid-19 vaccine in the beginning of November 2020, BTC positively correlated with the S&P, emerging market securities and commodities. But following BTC’s surge in price six months later, its momentum plateaued in 2021, Bloomberg highlights.
- JPMorgan Asset Management Global Market Strategist Gabriela Santos notes that crypto has a “super-unstable” correlation with other assets, saying it’s hard to imagine what returns will look like given its high volatility, she said on Seeking Alpha’s Alpha Trader podcast. “We’re having a really hard time including crypto assets in a portfolio,” she added.
- While bitcoin (BTC-USD) had a strong year in terms of price action and growing retail/institutional acceptance, its global crypto market cap of $2.24T is still inferior when compared with Gold (~$10T) and U.S. stocks (~$50T).
- The common conception behind BTC is that it can act as an inflation hedge. However, BTC is down more than 30% from its mid-November record high, while CPI marches higher to a near 40-year high. On the other hand, Gold (XAUUSD:CUR), which performs well in times of monetary regime shifts, gains about 6% within the same time frame.