Bitcoin is often heralded as a non-correlated asset. This narrative gained traction primarily due to the fact that Bitcoin’s price has moved independently of the U.S. S&P 500 for much of its history. While by and large, this has been widely true, there have been instances when it defied this popular narrative.
1) #Altcoins took another massive blow today, as both traditional markets and gold's price took a massive hit as markets opened. As has been the case since Black Thursday, the correlation between the US stock markets & gold, and $BTC, $ETH, and rest of pic.twitter.com/ciYM5oFGVe
— Santiment (@santimentfeed) September 21, 2020
Bitcoin and the cryptocurrency market sustained a major price slump. This was followed by a massive drop in the U.S. stock market. Other indices such as the German DAX and the U.K.’s FTSE also noted a significant decline.
The crypto-analytic platform, Skew noted that the one-year realized correlation between Bitcoin and Wall Street’s equity index and benchmark for global stock markets – S&P500 currently stood at 52.93% quite close to its ATH. In addition, a similar case was noted with respect to Bitcoin’s one-year realized correlation with Gold which recently touched an ATH of 74% on the 20th of September before a minor dip to 63.4% two days later. This has further solidified Bitcoin’s appeal as digital gold.
Uncorrelated assets are those assets that move independently of major stock market indices. This essentially gives an opportunity for investors to “beat the market.” This is not the first time the world’s largest cryptocurrency has behaved similarly to mainstream markets. However, it was not until 2020 when this trend saw a significant upsurge.
The COVID-19 pandemic has affected markets across all sectors and crypto has not been spared as well. As the economy suffered a hit, Bitcoin and the crypto market crashed massively on Black Thursday which happened in the second week of March. It was then that the Bitcoin’s correlation with mainstream markets saw a significant spike. This was driven by fear and panic that led to investors cash in or to turn to stablecoins to hedge against the falling markets.
Despite the recent surges in correlation, the one-month metric for S&P500 as well as Gold oscillated largely within a significantly wide range and was somewhat inconsistent. It is volatile in nature and this was evidenced by its sharp fall from $10,000 to $3,800 that was witnessed during the mid-March crash. Bitcoin is still a little over 11 years old and is yet to be a sufficient hedge or a flight to safety in times of risk-off sentiment.