Abstract: Historically, the positive correlation between Bitcoin and gold has increased significantly in recent years. At present, the correlation coefficient between Bitcoin and gold and the US dollar index is decreasing, while the correlation with the S & P 500 index is on the rise, and it is similar to the performance of the US stock market at the end of 2018.
In the past half month, the new crown virus continued to spread globally, increasing the risk of economic downturn, and the US stock market had four fuses: March 9, March 12, March 16, and March 18. On the day, the S & P 500 index fell by -5.60%, -6.74%, -9.48%, and -3.73%, while the corresponding daily increases and decreases of Bitcoin were -7.94%, -21.33%, -3.32%, and -0.68%. In less than a month, both the S & P 500 index and Bitcoin have fallen by nearly 30%, and both have shown a high correlation in the short term. At the same time, gold has not been spared, and gold futures have continued to fall from a high of $ 1,700 on March 9, currently reaching around $ 1,500, a decline of up to 12%.
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As an emerging asset, has Bitcoin shown hedging or linkage with stocks in the past, and has it had a similar hedging effect to gold? Let's review the correlation between Bitcoin and gold, the stock market, and the US dollar.
I. Correlation performance between Bitcoin and gold
In the past ten years, the 90-day correlation coefficients of Bitcoin and gold have mostly been between 0.1 and -0.1, and rarely exceed the range of -0.3 (July 2014) or 0.3 (July 2016). In other words, most of the time, the correlation between Bitcoin and gold is very small. However, from the perspective of the trend, after 2018, the positive correlation between Bitcoin and gold has increased significantly, and there is a considerable period of time, the correlation coefficient between the two is above 0.1. Lenovo thinks that when the tension in the Middle East intensifies at the end of 2019, the joint performance of gold and bitcoin can be said that bitcoin, as "digital gold", has a hedge performance under certain specific conditions.
Second, the correlation performance between Bitcoin and the stock market
From the perspective of Bitcoin price volatility, Bitcoin is a risky asset. However, with the exception of Bitcoin's early (January 2011) and individual periods with correlation coefficients above 0.3, most periods in the past decade have been between 0.1 and -0.1. In addition, the correlation coefficient between the two has an enlarged positive and negative alternation as a whole. It is worth noting that the highest value (absolute value) of the correlation coefficient between the two appeared in November 2018. During the period, there was a rare major retracement of U.S. stocks, and Bitcoin also experienced a significant drop. This is similar to the current situation, the reason for which is unknown, but can not help but make people think.
Third, the correlation performance between Bitcoin and the US dollar
As a peer-to-peer payment system, Bitcoin was born after the financial crisis in 2008. It has the original intention of “fighting against flooding in the world”. Has it ever acted as a global currency or a substitute for the dollar? Although Bitcoin has been used by some people for payment transactions, from the correlation with the US dollar index, there is no obvious correlation between the two. Moreover, there is no significant trend change overall.
Fourth, the correlation between Bitcoin and related assets
At present, the 90-day correlation coefficient between Bitcoin and the S & P 500 index is close to 0.2, and it is still on the rise, but it has approached a high level in history. The 90-day correlation coefficient between Bitcoin and gold has dropped to 0.1, and the 90-day correlation coefficient with the US dollar index has approached historical lows, and both have a downward trend. At the moment, the sharp downward linkage of assets such as stocks, gold and bitcoin is a manifestation of the depletion of liquidity in global capital markets. Faced with potential systemic financial risks, major economies in the world have begun to implement stimulus plans, and various types of assets need to emerge from the chain vortex under liquidity constraints.