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Trading Bitcoin Correlated with Other Assets? The Big Question

Bitcoin

September 17, 2020 | 

JOHN K MWANIKI |  2 Comments| 

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The correlation between Bitcoin and other stocks has been a matter of concern for some time. The first case has been on establishing the correlation. Traders have a hard time showing how the coin correlates with the other assets. 

Bitcoin was created to change the fiat economy. It was to be free from any effects of the traditional economy. It has, however, increasingly correlated with some assets. 

The big question is, will Bitcoin survive if the stock market crashes? 

This article explores how extensive the correlation between Bitcoin and other assets is. It also looks into the future of the assets. It answers the big question of Bitcoin surviving if the correlated assets go down. 

Why Bitcoin Correlates with Other Assets 

The correlation between Bitcoin and other assets goes back to inception. Bitcoin started as a liberator of the fiat economy. It was to solve the issues on the fiat currencies like inflation. The idea was to have a different setup. A coin without any single control entity. Instead, it is controlled by market forces. 

Starting at some of the lowest levels, no one envisioned correlation with the other stocks. Bitcoin, however, started gaining value. After some time, it became like any other stock. Most of the users considered it a reserve asset by then. Some even referred to it as the "digital gold."

After prolonged debates, the traders started accepting the correlation between Bitcoin and other stocks. They have, however, placed the correlation at low levels. Most claimed these relations are only evident at panicky moments

The correlation at panic moments was evident at the start of the coronavirus pandemic. The coin had a bullish run from around $9k to hit $3k in March. The decline coincided with a declining stock market. The traders suddenly started questioning the viability of Bitcoin as a safe haven.
Similar market growth was not new. The stock and crypto had faced identical growth patterns in 2018. 

The assets had some massive runs through the year 2017. The runs ended up in damping the following year. They are both still struggling to recapture the highs of those years. 

As Bitcoin becomes integral, its correlation with stocks becomes clearer. A report by DataTrek credits the correlation to market sentiments than the currency fundamentals.

Bitcoin has formed a correlation with the S&P 500, Nasdaq, and gold. The performance of these assets has been comparable in the past few financial years.  

The Performance Difference Between Bitcoin and Stock Market 

Even though the correlation between Bitcoin and the stock markets grow, they perform differently. The different market conditions have varying impacts on both. Bitcoin prospers in a stressful economy. The stocks, on the other hand, requires a settled economy. 

Bitcoin has become the go-to asset during a crisis. The eminent China-USA trade war between affected the stocks negatively. 

Most of the stocks went down. Bitcoin, however, had an upsurge at this point. It had one of the most significant gains in that duration. 

The same performance difference has been evident over the coronavirus epidemic. All the major sectors, from transport to entertainment, and hospitality remain grounded. Only the online and medical world prospered. The effects were massive on the forex trading

The economy had a beating almost similar to the 2008 economic crisis. While Bitcoin started on a similar path, it bounced back almost immediately. The coin has had a sustained increase in value to reach some highs of $12k. It, in the process, beat some of its historical resistance levels. 

The Future of Bitcoin and Stock Correlation 

The divergent market performance is due to demand. Most investors abandoned stocks at the prospects of a declining economy. Bitcoin, however, bounced before users damped it. The users have the confidence that the coin always bounces back. They held more of the coins. 

Those abandoning the stocks still needed a place to invest. Bitcoin is the best alternative asset. The online world was on the rise. As a digital asset, Bitcoin gained the most. As the demand grew with the same supply, the value kept rising.

The stock market is at the moment on a gaining path. It will attract more traders who seek diversity. Both markets are likely to balance in the end. Bitcoin is also adopting a stock nature. It has introduced futures, hedge funds, and other derivatives, which point to an increased correlation.

Will the Stock Market Crash?

The 2020 financial year has been one of the most uncertain. The effects of the coronavirus on the economy are still on. Even though it seems as if the economy is picking, the results don't seem to tally. The unemployment rates are high, and the pandemic still intensifies.

The latest data from Dow Jones Averages shows all the significant stocks related to Bitcoin trading lows. Both the Nasdaq Composite and S&P500 are trading on the lows. 

No matter how much the stock market revives, it would amount to no good with the coronavirus still around. Some of the longtime wall-street performing stocks like Apple and Tesla have suffered in recent times. Tesla, for example, missed the listing on the S&P 500. 

Several market sectors are still struggling with lower stock prices. Energy and financials have traded on the lows for some time. 

The presidential elections will also impact the stocks. The remaining two months leading to the polls are some of the most charged. Not much economic growth is expected. A sustained decline of the economy can lead to the economy crashing. 

Having developed a considerable correlation with Bitcoin, the possibility of the coin crashing becomes a concern. The simple answer is, it won't. 

Bottom Line 

The correlation between Bitcoin and stocks is a work in progress. It keeps growing as the market changes. With a possible stock market crash, Bitcoin users have to look into the possibility of the coin facing the same. 

Bitcoin has, however, shown resilience. Changes in the stocks will not affect it so much. Still, don't expect stability. Bitcoin's volatility means it changes with market changes. 

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batholomew brown
batholomew brown . I’m a bitcoin trader and the time I’m writing this blog I can’t find a single review about many bitcoin trading signal services and companies. I have lost lots of money testing them for over an year. I don’t want you to be scammed too.

0     Reply    10 months ago from: Canada

batholomew brown
batholomew brown . I’m a bitcoin trader and the time I’m writing this blog I can’t find a single review about many bitcoin trading signal services and companies. I have lost lots of money testing them for over an year. I don’t want you to be scammed too.

0     Reply    10 months ago from: Canada

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