The correlation between Bitcoin and gold is declining, has its "safe harbor" attribute gone forever?

Bitcoin has always been considered a better investment option than traditional stocks, and was once called a "safe harbor" by investors. Whether or not Bitcoin has a "safe harbor" attribute, its performance is very similar to that of gold during the 2008 financial crisis. Many analysts point out that the similarity between Bitcoin and major stocks in the trend and the uncorrelation that may appear next seems to be the next major trend for Bitcoin.


Image source: Pixabay

According to well-known crypto analyst Willy Woo, traders have begun to exit higher-risk leveraged transactions and have been holding dollars. With the economic crisis forcing traders to have a "cash is king" mentality, many retail investors have begun to sell to maintain the value of the US dollar. According to Woo's comparison of the 2008 financial crisis situation and the current market, all US dollar traded assets may face a difficult period.

As the "safe flight period" ended, Bitcoin collapsed, and other financial markets also collapsed. Just as gold is starting to appear irrelevant to stocks, Bitcoin may also be decoupled from traditional assets. According to Coin Metrics' asset correlation chart, when Bitcoin started to rise sharply from mid-January this year, its correlation with Standard & Poor's (S & P) also increased. This correlation reached an all-time high on March 14 with a correlation coefficient of 0.49.

Bitcoin S & P correlation

Bitcoin and Standard & Poor's Related Index Charts | Source: Coin Metrics

Although Bitcoin has not been completely decoupled from the stock market, Woo believes that as the correlation between Bitcoin and gold is declining, it has also begun to show decoupling from the stock market. Whenever the correlation between Bitcoin and Standard & Poor's increases, the correlation between Bitcoin and gold decreases. According to CoinMetrics, on February 20, the correlation between Bitcoin and gold was only 0.06.

Bitcoin and gold related indices

Bitcoin and Gold Related Index Charts | Source: Coin Metrics

As analysts predict that Bitcoin is irrelevant to traditional stock markets, data provider Skew emphasized that market volatility is increasing. Bitcoin's implied volatility has reached its highest level, with March's ATM volatility of 235 and a daily volatility of 12%.

Implied Volatility of Bitcoin Parity Options

Implied Volatility Graph of Bitcoin Parity Options | Source: Skew

It is predicted that the volatility of the bitcoin market will increase, and prices may surge. The Bitcoin options market expects 50% of outstanding contracts to expire before the end of March, and the price of most options is higher than the spot price.

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