Coinbase: Bitcoin's correlation with traditional markets is temporary

Written in front: This article is written for Coinbase for its customers, hoping that they understand basic market analysis knowledge.

Coinbase: Bitcoin's correlation with traditional markets is temporary

Too long to look at the edition: Although according to historical data, Bitcoin has recently been sold off just like the S & P 500 (S & P 500), the near-term correlation may be temporary.

On November 18, 2007, just before the financial crisis, an article in The Economist read:

"Since the stock market bear market from 2000 to 2002, institutional investors have been looking for 'unrelated' assets. They realize that the bets they place on the stock market are too large and want to diversify. But whether it is government bonds or cash Are unable to provide the benefits they want. "

The movement of unrelated assets has nothing to do with mainstream stock indexes, which may provide savvy investors with the opportunity to "outperform the market." For many years, Bitcoin has been widely regarded as an "irrelevant" asset. Overall, this is statistically correct. The statistical method of Correlation Coefficient shows that the price of Bitcoin has been independent of the US S & P 500 Index for most of its history. However, bitcoin and the S & P 500 have recently seen positive correlation sell-offs.

Coinbase: Bitcoin's correlation with traditional markets is temporary

(Relevance of Bitcoin vs. S & P 500 Index)

A correlation coefficient of 1.00 means that the two asset price trends are consistent or positively correlated. A correlation coefficient of -1.00 indicates that the prices of the two assets are opposite or negatively correlated (that is, Bitcoin will be sold when the S & P rises, and vice versa). The historical correlation between Bitcoin and the S & P 500 index fluctuates between 1.00 and -1.00, sometimes it seems to be positive, and sometimes it is negative. This means that Bitcoin has historically been largely uncorrelated with major stock market indexes.

For the comparison of the trend of positive related assets in the traditional market, you can refer to the S & P 500 Index and the Dow Jones Industrial Average:


For the comparison of the trend of positive related assets in the cryptocurrency market, you can refer to the trend of Bitcoin and Ethereum:

Coinbase: Bitcoin's correlation with traditional markets is temporary

Although there has been a brief negative correlation, the price movement of Ethereum is generally consistent with Bitcoin.

Last week, global markets plummeted, and Bitcoin was sold off along with the S & P 500. In traditional markets, exchanges around the world have stopped trading to curb selling. However, since its creation on January 3, 2009, Bitcoin's peer-to-peer protocol has been operating normally 99.98% of the time. In addition, Bitcoin's spot market liquidity is global, decentralized, and operates around the clock.

Coinbase: Bitcoin's correlation with traditional markets is temporary

(Return on Bitcoin vs. S & P 500 Index)

The global market is volatile this year. Bitcoin has returned -13.2% since this year, and the S & P 500 index is -25.1%. It is worth noting that Bitcoin's volatility is significantly higher than the S & P 500 Index. Despite volatility, the benefits of Bitcoin may become more apparent as the world enters the unknown economic, monetary, and fiscal realms. As a global, license-free, scarce asset, Bitcoin may prove its value.

If Bitcoin's historical trend is a reliable indicator, the recent positive correlation with the S & P 500 Index may be temporary. On the other hand, if the correlation of the S & P 500 index continues for a longer period of time after that … Bitcoin will enter an unknown area.

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