The Wolf Den #447 - Is Bitcoin Correlated To Stonks?
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This newsletter is sponsored by PHEMEX, the world's best crypto exchange for both spot and leverage. Sign up with the link above to get up to $3600 in bonuses, and 100% APY on your USDT for this week only.Bitcoin is a borderless digital asset that is not controlled by a government or centralized entity. Bitcoin’s price should theoretically travel its own path, independent of other currencies and markets. There is constant bickering in the community as to whether Bitcoin trades like traditional markets. Is it correlated to stocks? Is it a “safe-haven” investments like gold? Is Bitcoin not correlated to anything? Available data shows no clear answer, as Bitcoin’s correlation seems to change with the wind, while a number of experts have varying thoughts on the matter.There has been much ado about Bitcoin’s correlation to the stock market and, more specifically, SPX in recent months. While most assets become temporarily correlated in a global crisis and drop together, Bitcoin has continued to be largely uncorrelated outside of a few bad days or weeks. As it stands, Bitcoin’s historical correlation for the past 10 years (depending on whether you use Pearson or Spearman) rests around .16. CLEAR lack of correlation. Correlation is calculated on a scale of 1.0 to -1.0 (with 1.0 meaning two assets are completely correlated and -1.0 meaning they aren’t correlated at all).During the global pandemic, the correlation reached a .5, defined as “moderate correlation,” although this was temporary. The month of January had a correlation of around .35. A nominal correlation, if any.This is mathematical fact and not up for debate, assuming you define correlation using Modern Portfolio Theory by Markowitz, which is where the idea comes from.Given that most people invest for long time horizons, it’s really the longer-term correlations that matter most. We want to see the benefits of diversification over the course of our holding period, not across every day/week/month within that holding period. So far, Bitcoin is still uncorrelated to most major assets over longer-term horizons, which makes if the holy grail for any investment portfolio.Trading based on the movement of the stock market is a risky pursuit at best.So is there anything interesting to note about Bitcoin’s relationship to other assets?Yes, and the answer is not the stock market or gold, but rather the good ol’ USD. Bitcoin has had a loose INVERSE correlation to the movement of the dollar in the past, although it is still relatively weak.This is not directly reflected by the mathematical equation used above, as they fall around -.2 historically, still largely uncorrelated. That said, pulling up a chart of the 2, it is obvious that there have been times when all assets have collectively traded inversely to the dollar. The chart is in the "legacy markets" section below. I cannot embed it in the intro.The peaks and valleys on this chart are clear to the naked eye. At their best and worst moments, Bitcoin and the dollar have had a gaping chasm between them.I, along with many other traders, used to discuss this inverse correlation all of the time. The idea seems to have lost steam, as the crypto community has the attention span of a brainless gnat and moves from narrative to narrative like Usain Bolt moves from line to line in the 100-meter dash.I will take a look at DXY today in the newsletter to see what this is telling us moving forward. It is important to note that the US Government at the highest level desires to devalue the dollar. If they are successful at doing so, that “should” be amazing news for our beloved cryptocurrency.My Chart Request Livestream Will Take Place This 10 AM EST. You can tune in here: In This Issue:Is Bitcoin Correlated To Stonks?Bitcoin Thoughts And AnalysisAltcoin ChartsLegacy MarketsThe SEC SucksUkrainians Are Scooping Up CryptoUkraine Airdrop To DonorsFTX Launches Philanthropic FundMy Recommended Platforms And ToolsIF YOU HAVE ANY ISSUE WITH THE NEWSLETTER OR YOUR SUBSCRIPTION, PLEASE CONTACT: PREMIUMSUPPORT@GETREVUE.CO
The Wolf Den #447 - Is Bitcoin Correlated To Stonks?
The Wolf Den #447 - Is Bitcoin Correlated To…
The Wolf Den #447 - Is Bitcoin Correlated To Stonks?
This newsletter is sponsored by PHEMEX, the world's best crypto exchange for both spot and leverage. Sign up with the link above to get up to $3600 in bonuses, and 100% APY on your USDT for this week only.Bitcoin is a borderless digital asset that is not controlled by a government or centralized entity. Bitcoin’s price should theoretically travel its own path, independent of other currencies and markets. There is constant bickering in the community as to whether Bitcoin trades like traditional markets. Is it correlated to stocks? Is it a “safe-haven” investments like gold? Is Bitcoin not correlated to anything? Available data shows no clear answer, as Bitcoin’s correlation seems to change with the wind, while a number of experts have varying thoughts on the matter.There has been much ado about Bitcoin’s correlation to the stock market and, more specifically, SPX in recent months. While most assets become temporarily correlated in a global crisis and drop together, Bitcoin has continued to be largely uncorrelated outside of a few bad days or weeks. As it stands, Bitcoin’s historical correlation for the past 10 years (depending on whether you use Pearson or Spearman) rests around .16. CLEAR lack of correlation. Correlation is calculated on a scale of 1.0 to -1.0 (with 1.0 meaning two assets are completely correlated and -1.0 meaning they aren’t correlated at all).During the global pandemic, the correlation reached a .5, defined as “moderate correlation,” although this was temporary. The month of January had a correlation of around .35. A nominal correlation, if any.This is mathematical fact and not up for debate, assuming you define correlation using Modern Portfolio Theory by Markowitz, which is where the idea comes from.Given that most people invest for long time horizons, it’s really the longer-term correlations that matter most. We want to see the benefits of diversification over the course of our holding period, not across every day/week/month within that holding period. So far, Bitcoin is still uncorrelated to most major assets over longer-term horizons, which makes if the holy grail for any investment portfolio.Trading based on the movement of the stock market is a risky pursuit at best.So is there anything interesting to note about Bitcoin’s relationship to other assets?Yes, and the answer is not the stock market or gold, but rather the good ol’ USD. Bitcoin has had a loose INVERSE correlation to the movement of the dollar in the past, although it is still relatively weak.This is not directly reflected by the mathematical equation used above, as they fall around -.2 historically, still largely uncorrelated. That said, pulling up a chart of the 2, it is obvious that there have been times when all assets have collectively traded inversely to the dollar. The chart is in the "legacy markets" section below. I cannot embed it in the intro.The peaks and valleys on this chart are clear to the naked eye. At their best and worst moments, Bitcoin and the dollar have had a gaping chasm between them.I, along with many other traders, used to discuss this inverse correlation all of the time. The idea seems to have lost steam, as the crypto community has the attention span of a brainless gnat and moves from narrative to narrative like Usain Bolt moves from line to line in the 100-meter dash.I will take a look at DXY today in the newsletter to see what this is telling us moving forward. It is important to note that the US Government at the highest level desires to devalue the dollar. If they are successful at doing so, that “should” be amazing news for our beloved cryptocurrency.My Chart Request Livestream Will Take Place This 10 AM EST. You can tune in here: In This Issue:Is Bitcoin Correlated To Stonks?Bitcoin Thoughts And AnalysisAltcoin ChartsLegacy MarketsThe SEC SucksUkrainians Are Scooping Up CryptoUkraine Airdrop To DonorsFTX Launches Philanthropic FundMy Recommended Platforms And ToolsIF YOU HAVE ANY ISSUE WITH THE NEWSLETTER OR YOUR SUBSCRIPTION, PLEASE CONTACT: PREMIUMSUPPORT@GETREVUE.CO