Bitcoin (BTC) Continues to Be Positively Correlated with Equity Markets, Research Says
According to a report published by The Block, on March 28, 2020, premier cryptocurrency Bitcoin (BTC) continues to struggle to establish its “safe-haven” status amid the ongoing financial crisis courtesy of the devastating COVID-19 pandemic.
Bitcoin “Safe-Haven” Status a Distant Dream?
Launched in a bid to not allow an encore of the 2008 financial crisis like situation, Bitcoin, for long, has been touted as the “safe-haven” for investment in times of peril, much akin to gold. The first and the largest cryptocurrency in terms of market cap, Satoshi Nakamoto’s Bitcoin was launched towards the end of the spectacular fall of Lehmann Brothers Co.
Since then, a major USP of BTC has been its perceived uncorrelated relationship with traditional equity markets. However, according to new research by The Block, in recent times, Bitcoin has been relatively correlated to the equity market. This is interesting, as according to data from earlier this year, the correlation between Bitcoin and the S&P 500 index started was indeed negative.
For the uninitiated, the value of the correlation between Bitcoin and equity market refers to the direction of movement the two markets move in. For example, a positive correlation would mean that the two markets would move in the same direction. Conversely, a negative correlation implies an inverse price relationship between the two markets, i.e., they move in opposite directions.
The report by The Block, reads in part:
“Going into March, however, it entered into the positive range and reached a high of 0.32. The contract between the negative correlation in Jan. and the positive one in March. – both statistically significant – shows an interesting development.”
(Source: The Block)
The Positive Correlation Could Disappear Soon
The Block researcher, Larry Cermak, added, however, that the current correlation isn’t enough to prove that the two markets will always necessarily move in the same direction. Cermak said that the correlation between the two markets can disappear just as quickly as it showed up. He, however, also added that there is no indication of that happening as of yet.
In similar news, BTCManager reported on March 23, 2020, how the COVID-19 pandemic could act as a litmus test for the long-heralded safe-haven status of Bitcoin. Whether it holds true in the long run, only time will tell.