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Since its inception, bitcoin has been dubbed “digital gold” as it is as durable, fungible, divisible and scarce as the precious metal.
However, while gold has a solid track record of rallies in times of stress in global equity markets, bitcoin has yet to build a similar reputation as a safe haven.
In fact, in recent months, cryptocurrency has been increasingly correlated with the S&P 500, the Wall Street stock index and benchmark for global equity markets. Now, the data suggests the relationship is stronger than ever, likely denting bitcoin’s appeal as digital gold.
The one-month bitcoin-S&P 500 realized correlation rose to a record high of 66.2% on June 30 and stood at 65.8% on Thursday, according to crypto derivatives research firm Skew, which reported started tracking data in April 2018.
“While the correlation between bitcoin and the S&P 500 is always a great indicator of market movement, it never holds a consistent position. Bitcoin behaves more like a highly leveraged position and follows market trends in more volatile and dramatic swings,” he said. said Wayne Chen, CEO and director of Interlapse Technologies, a fintech company.
The one-month metric largely fluctuated in the range of -30% to 50% for 12 months before climbing to all-time highs above 60% on June 30. In fact, the data show that bitcoin’s correlation with the S&P 500 is somewhat inconsistent.
According to Skew, the one-year correlation also climbed to highs above 37%. It should be noted, however, that readings between 30% and 50% imply relatively weak correlation between the variables.
“Bitcoin, by all accounts, is still a risk asset. Despite those who may advertise its fundamental similarities to gold, it has not yet proven itself to be a sufficient hedge or escape to safety in times of no risk. “said Matthew Dibb, co-founder of Stack, a provider of cryptocurrency trackers and index funds.
Risk assets are those with fortunes linked to the state of the global economy. For example, the prices of stocks and industrial metals such as copper tend to rise when the global economic growth rate is expected to rise and falter during an economic slowdown.
Bitcoin has behaved more or less like a risk asset this year. The cryptocurrency’s price fell from $ 10,000 to $ 3,867 in the first half of March as global stocks plummeted on coronavirus fears. It then climbed back up to $ 10,000 over the next two months as the S&P 500 saw its fastest bear market recovery on record.
However, being treated as a risk business can be a blessing in disguise for bitcoin.
“Since the correlation between BTC and stocks is still so high, our expectation is that this is only bullish for the price of bitcoin in the short term, as global markets benefit from an unprecedented amount of monetary stimulus,” Dibb said. .
Indeed, the US Federal Reserve and other major central banks are injecting huge amounts of legal liquidity into their respective economies to counter the COVID-19 slowdown. As of last week, the Fed’s balance sheet size was $ 7.01 trillion, up 67% from $ 4.24 trillion in early March, according to data provided by the St. Louis Federal Reserve.
HODLing continues to rise
While bitcoin is struggling to establish itself as a safe haven asset, some investors remain undaunted.
“HODLers,” or long-term holders of bitcoin, as measured by the number of addresses that store bitcoins for at least 12 months, jumped to a maximum of 20.3 million in June. This surpassed the previous high of 19.52 million reached in May, according to IntoTheBlock, a blockchain intelligence firm.
“With the halving just completed, many holders believe that the average price of Bitcoin should be much higher than the current value. This creates more of a hodl type of behavior until the market starts building steam again,” he said. said Chen.
The metric set a new record for the 12th consecutive month in June. Notably, the number of holders increased by 22% year-on-year, although the price of bitcoin fell by 25% over the same period.
As of press time, the cryptocurrency is trading at $ 9,110, having dipped to lows near $ 8,930 during US trading hours on Thursday.
Disclosure: The author has no cryptocurrency assets at the time of writing.
