{"id":96795,"date":"2020-10-24T17:45:00","date_gmt":"2020-10-24T14:45:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/frozen-out-bitcoin-price-correlation-to-other-assets-still-undefined\/"},"modified":"2020-10-24T17:45:00","modified_gmt":"2020-10-24T14:45:00","slug":"frozen-out-bitcoin-price-correlation-to-other-assets-still-undefined","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/frozen-out-bitcoin-price-correlation-to-other-assets-still-undefined\/","title":{"rendered":"# Frozen out? Bitcoin price correlation to other assets still undefined"},"content":{"rendered":"

“# Frozen out? Bitcoin price correlation to other assets still undefined <\/strong>”
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A recent report from institutional crypto firm Fidelity Digital Assets concluded that Bitcoin (BTC) shows very little price correlation to mainstream financial assets, based on data from the past five years. Over the course of 2020, Bitcoin has gained further adoption into mainstream finance, which logically might impact the asset\u2019s correlation or lack thereof. Has Bitcoin\u2019s correlation changed in 2020?\u00a0<\/p>\n

Ria Bhutoria, director of research at Fidelity Digital Assets, told Cointelegraph via email: \u201cBitcoin has experienced higher positive correlations to other assets over shorter time periods, especially during periods of uncertainty and turbulence, and even prior to 2020.\u201d<\/p>\n

Amid rising COVID-19 concerns and prevention measures starting in March 2020, Bitcoin plummeted in price, seemingly in step with the U.S. stock market. \u201cThe increase in correlation between Bitcoin and other assets was a consequence of a short-term liquidity crisis that impacted many asset classes,\u201d Bhutoria explained of the March drop. Essentially, a large number of people rushed to sell their financial assets in exchange for cash when times became uncertain around the COVID-19 pandemic news<\/a>. She added:<\/p>\n

\u201cThe correlation of all these assets versus one another rose as a result. Regarding Bitcoin, another potential reason could be greater overlap in market infrastructure and between market participants in traditional and digital asset markets.\u201d<\/p><\/blockquote>\n

Fidelity released an in-depth October report labeled \u201cBitcoin Investment Thesis: Bitcoin\u2019s Role As An Alternative Investment.\u201d<\/em>\u00a0Authored by Bhutoria, the report\u00a0touched on a bevy of topics. One particular segment of the report pointed out Bitcoin\u2019s lack of correlation to other financial assets, including U.S. stocks and gold. Correlation stands as a\u00a0hotly debated topic in the crypto industry.<\/p>\n

Using data from\u00a0January 2015 to September 2020, Fidelity\u2019s\u00a0report<\/a>\u00a0concluded that Bitcoin performed differently than mainstream assets, signalling virtually zero correlation to other markets for that time period. BTC scored a 0.11 in a range between -1 and 1. Wielding a 1 rating means prices of assets travel<\/a> exactly in step with one another, while a score of -1 means exactly the opposite price action. Any asset holding a score of 0 walks its own price path, unaffected when others move.\u00a0<\/p>\n

In addition to the March drop, multiple other instances have shown a seeming correlation between Bitcoin and traditional markets, at least at certain points. The element of adoption could play into the equation, making Bitcoin more correlated than years prior \u2014 an aspect pointed out in Fidelity\u2019s report. \u201cBitcoin is a young asset that, until recently, was untethered to traditional markets,\u201d the report read, adding: \u201cAs it is integrated in institutional portfolios, it could become increasingly correlated with other assets.\u201d\u00a0<\/p>\n

Related:\u00a0The next big treasure: Corporations buy up Bitcoin as a treasury reserve<\/em><\/strong><\/p>\n

Bitcoin has seen significant mainstream adoption in 2020. One sign is a number of traditional financial players, such as MicroStrategy, have accumulated sizable Bitcoin positions. PayPal also recently announced plans for adding Bitcoin to its platform in 2020, pushing the asset further into the mainstream spotlight.\u00a0<\/p>\n

\u201cBitcoin\u2019s longer-term correlations to other assets could continue to be low, given Bitcoin\u2019s differing risk and return factors versus other asset classes and its dynamic use cases and narratives,\u201d Bhutoria said, adding further:<\/p>\n

\u201cIf investors with longer time horizons and convictions allocate to Bitcoin, the magnitude of spikes in short-term correlations to other assets in times of uncertainty could subdue as well. These are conjectures that we will continue to update as we get more data and a better understanding of Bitcoin\u2019s behavior in a prolonged crisis.\u201d<\/p><\/blockquote>\n

Over the years, other industry participants have also weighed in on Bitcoin\u2019s price in line with other markets. Morgan Creek Digital co-founder Anthony Pompliano holds as a long-time advocate for Bitcoin as a non-correlated asset.\u00a0<\/p>\n

\u201cAll assets trend towards a correlation of 1 in a liquidity crisis,\u201d Pompliano told Cointelegraph in an email, which also lines up with\u00a0Bhutoria\u2019s explanation. He further added:<\/p>\n

\u201cWe saw a liquidity crisis hit earlier this year, so it is natural to expect correlations to increase during these times. We are seeing a decoupling over the last few weeks and my guess would be we will see a return to low\/no correlation over the coming months.\u201d<\/p><\/blockquote>\n

Prior to Bitcoin\u2019s launch in 2009, the financial crisis of 2007\u20132008 yielded similar liquidity issues. As the public often compares Bitcoin to gold, looking at gold during this crisis adds perspective. \u201cWe saw gold drop 30% over the liquidity crisis during the summer of 2008, along with all assets trending to a correlation of 1 during the same time,\u201d Pompliano wrote, adding: \u201cEventually the assets decoupled later on and so history can teach us a great lesson here as well.\u201d\u00a0<\/p>\n