Editor's Note: The original title was "Bitcoin and S & P 500 reach the highest level in history"
In the middle of last month, the correlation between Bitcoin and the S & P 500 index reached a record high. The S & P 500 Index is a market index that tracks the performance of the share prices of large American companies. Such a degree of correlation makes people start to reflect on the role of Bitcoin as "digital gold", because such assets should be irrelevant to the traditional market.
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The Coin Metrics chart shows that the Pearson correlation coefficient between Bitcoin and the S & P 500 reached a record high of about 0.5 in mid-March. A correlation coefficient of 1 represents a completely positive correlation, a coefficient of 0 represents no correlation, and a coefficient of -1 represents a completely negative correlation.
What does it mean to better understand the correlation between Bitcoin and major stocks in the past? LongHash contacted Spencer Bogart, general partner of Blockchain Capital, Nic Carter, co-founder of Castle Island Ventures and Coin Metrics, and Kevin Kelly, co-founder of Delphi Digital.
What did this "digital gold" experience?
Although the price of bitcoin plummeted after the World Health Organization included the new coronary pneumonia in the epidemic category, we are not surprised. As we mentioned last month, bitcoin is a hedge asset under the collapse of the fiat currency system, not used to deal with economic crises.
"I am not surprised by the recent correlation between the S & P 500 and Bitcoin. My concern is that the mathematical relationship between the two has fallen since it rose in mid-March." Nic Carter said, "In order to seize liquidity , Investors switch their short-term assets to long-term assets to add margin or pay mortgages, etc .. Bitcoin is often the least impacted liquid asset and is not affected by tax incentives, so it is not small for many pressures. Of investors, they will indeed start with bitcoin. "
Spencer Bogart mentioned that in the period of tightening capital flows, the correlation between assets will increase, and he believes this is also the fact that it has been performed in the past month.
Bogart explained: "At the worst of the market crash, all assets were connected, because every liquid asset was sold into cash. So, in the most chaotic time, there are no safe haven assets, even the system is mature. Hedged assets such as gold and U.S. bonds have also been heavily sold. Bitcoin has been up since the beginning of the year and has performed better than almost all mainstream assets (except gold and bonds), so I think Bitcoin is in one step Step from the speculative assets that many people disdain, to the widely held global currency and value storage means. "
Regarding Bogart's point of view, a recent report by Delphi Digital shows that Bitcoin's performance in the past 12 months has exceeded all major assets.
In this regard, Kevin Kelly also said: "I do not think that this round of bitcoin sell-off is worth worrying too much. After all, the entire market is in a special period. For example, from March to October 2008, after the stock crashed, gold also had 30% plunge. "
But should n’t Bitcoin have nothing to do with anyone?
Bogart and Kelly pointed out that long-term trends are more important than short-term correlations during economic crises.
Bogart said: “Most people are long-term investments, so long-term correlation is more important. We hope to see the benefits of diversification throughout the entire period of holding, rather than focusing on individual trends for each day / week / month From a long-term perspective, bitcoin is still not related to most assets. "
Kelly added that the recent correlation between Bitcoin and the S & P 500 is not enough to overturn the theory that “Bitcoin is not related to other assets”.
Kelly said: "We have just witnessed the most volatile period of stock prices in decades, with average daily volatility ranging from 3% to 5% in a few weeks. In a typical liquidity crisis, few assets can escape huge Selling pressure. So do n’t be too surprised by the subsequent plunge of Bitcoin. Historically, the dramatic market fluctuations are consistent with the massive sell-off of Bitcoin and other cryptocurrencies. "
Kelly said that the lack of historical correlation between Bitcoin and the traditional market is mainly due to its investor type. Its investors are generally active in the cryptocurrency market.
Kelly said: "If there are more institutional investors in cryptocurrencies, then the correlation between Bitcoin and other assets will also increase, because these veteran veterans will examine and manage their positions in a variety of asset portfolios."
Where to go next?
Although Bitcoin was not spared from the economic crisis caused by the new crown pneumonia, Bogart believes that Bitcoin will continue to shine in the next few years.
He explained, “When we end this worst period of the global market (hopefully), Bitcoin will be a special position. Although it faces the risk of liquidity tightening like all other assets, from Looking at the long-term economic resistance that we face in the coming months or years, bitcoin will be affected much less. When the liquidity crisis passes, just as the economic crisis ended in 2008, the US dollar used for marginal investment will return. By the time the economy continues to weaken, the least affected assets, I hope that Bitcoin will benefit from this asset allocation trend. "
In Kelly's view, after this economic crisis, bitcoin will show its utility of "digital gold" to the world more than it did last month's plunge.
But Kelly also added that the policies used to deal with the new coronary pneumonia, in terms of scale and scope, may lengthen the timeline for Bitcoin to prove its value.
LongHash , use data to understand the blockchain .