2020 has been an important year for cryptocurrency and, more specifically, for bitcoin.
The largest digital asset performed relatively well after the financial meltdown in March due to the ongoing COVID-19 pandemic. Although countless analysis have been drawn and identified to understand Bitcoin’s short-term market behavior, it is important to note that current statistics may play a key role in shaping the market over the next few months.
Bloomberg’s recent report indicated that Bitcoin has started to mature in the overall financial market and the largest digital asset could possibly transition into a risk-on speculative asset, adhering to the characteristics of Gold. The report stated,
“From a volatility perspective, declines in Bitcoin’s reading and the rise for the stock market’s shifts performance favor toward the crypto asset.”
The above chart showed that over a 52-week period, Bitcoin shifted its connection to Gold rather than equities. Admittedly, there is a recent spike in the correlation between stocks and Bitcoin, but according to the chart, Bitcoin and Gold are currently incurring an all-time high correlation index of 0.4924, while BTC and S&P 500 had a market index of 0.2428.
The report also suggested that Bitcoin’s recent consolidation is mirroring its sideways movement back from 2018 and appeared to me approach stability before following gold’s bull market over the coming months.
Volatility favoring Bitcoin over Traditional Stocks
In the past, Bitcoin’s volatility has always been used against its credibility in the market. However, the tables had turned in 2020 as the rise in stock-market volatility vs a decreasing volatile Bitcoin could possibly tilt the market investors in Bitcoin’s favor.
The report suggested,
“Despite Bitcoin annualized volatility that’s averaged about 5x that of the S&P 500 in the past year, the crypto is down only about 5% in 2020 vs. almost 22% for the stock index. For the nascent crypto, it’s also an indication of a transition toward gold-like adoption, maturity and performance.”
Additionally, the report stated that the major benefits of Gold and Bitcoin are that they are on ‘back-end of significant shakeouts’. What is meant is that the traditional asset class is undergoing a mean-reversion process which should allow safe-haven asset such as Gold and Bitcoin to prosper due to reduced correlation with stocks.
Counting the chickens before they hatch?
However, in spite of the positive, it is important to take note that the report did not take into consideration, the immediate event that is approaching Bitcoin. BTC will undergo is halving in 17 days and it will have to facilitate drastic changes to Bitcoin’s fundamentals.
Hence, it was better to hold the brakes on Bitcoin’s reduced volatility bandwagon, which could possibly spike during the month of May.
Bitcoin is entering an interesting period as April proliferated a steady start to Q2 2020.