Correlation Increases Between Bitcoin and Traditional Financial Markets

Amazingly, the correlation between #bitcoin and the #markets is a lot closer to 1 now than it ever has been. One of the most attractive reasons to buy into the shiny new asset class that are crypto-assets is their low overall correlation with the assets that we are already invested in.

In other words, we like that bitcoin zigs, when the rest of the market zags. The most recent government shutdown provided a great example of this low correlation. At the stroke of midnight, like clockwork almost, when the government began to officially cease operations, the price of bitcoin started to inch up, eventually leading a 10% rally within a day after the shutdown. Granted, that rally then quickly evaporated, but the point is asset managers tend to gravitate towards assets that provide a counterweight to macro-economic sentiment.

However, in a recent Bloomberg Gadfly post:

https://www.bloomberg.com/gadfly/articles/2018-02-06/bitcoin-and-stocks-have-more-in-common-than-you-think?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo

We find that the low correlation between the crypto-asset asset class and the asset class of traditional financial instruments of stocks, bonds, and mutual funds is now at 80%.

As the author states, "this is pretty unexpected, considering that Bitcoin is essentially just a piece of code."

But when big moneyed interests start playing around in the same sandbox with each other, we should start to expect the extended periods of low-volume upward churn followed by sporadic bouts of gut-wrenching volatility. That has been the pattern of the stock market since the crash of 2008.

Why shouldn't that continue, whether it's a cryptographic asset or a plain vanilla security?

Welcome to the big table, Bitcoin.