Bitcoin price is slowly recovering, returning to the price of $ 5,500 after Dark Thursday last week. Bitcoin price plummeted as traditional markets suffered the third worst trading day ever. The adjustment that day was followed by major cryptocurrencies such as Ether, XRP and Bitcoin Cash, which lost 11.6%, 8.3% and 4.2%, respectively.
The fall in cryptocurrencies has further raised doubts about the classification or use cases of Bitcoin in particular and cryptocurrencies in general. The debate over Bitcoin's safe haven as "digital gold" is being questioned because gold's annual profits have surpassed Bitcoin and all other asset classes.
Bitcoin critic Peter Schiff spoke about the relationship between Bitcoin and traditional assets to declare BTC's lack of value to investors:
“Bitcoin is no longer an unrelated asset. It has a positive correlation with risky assets like stocks and inversely correlates with safe-haven assets like gold. When riskier assets decline, Bitcoin will drop even more. But when riskier assets increase, Bitcoin increases less. There is no value in that! ”
On the other hand, there have been reports that financial advisers believe that Bitcoin is a good alternative investment to consider adding to a portfolio. This raises doubts that the relationship between cryptocurrencies and traditional assets claimed by Peter Schiff is observed in different scenarios.
Bitcoin and crypto profits far outweigh other risky assets in the positive phase
In January 2020, Bitcoin and Ethereum reached an increase of 26.2% and 32.9%, respectively. At the same time, during such a positive period for leading cryptocurrencies, traditional assets such as the S&P 500 have increased (1.96%) and the Nasdaq has remained the same (- 0.16%).
Accumulated profits for BTC, ETH, Oil, Gold, S&P 500 and Nasdaq in January 2020.
Looking at the correlation between the 4 assets in January, we see an inverse relationship to the view mentioned by Peter Schiff. Bitcoin and Ether are negatively correlated with both the Nasdaq and the S&P 500.
Crypto correlates negatively with stock indices in the positive phase
Bitcoin had an inverse correlation at -24.4% with Nasdaq during this period, while Ether had a smaller inverse correlation at -16.2%.
For the S&P 500, Bitcoin has an inverse correlation at -19.7%, while Ether has a smaller inverse correlation of -7.9%.
This is in contrast to Schiff's comment, because, in a positive scenario, Bitcoin is higher than other risky assets, as seen from the profits gained in January. Moreover, Bitcoin and Ether have The correlation with stocks in the opposite direction (negative), contrary to Schiff's comment.
A 100% correlation means that Bitcoin or Ether and each traditional asset move completely in the same direction, while a 100% correlation means that they move in opposite directions. A 0% correlation means that the parties are not related in any way.
In January, both BTC and Ether profits showed a positive correlation with gold at 24.1% and 22% respectively. The relationship between BTC, Ether and WTI oil profits is also very positive and to a higher level 33.6% in the case of Bitcoin and 34.7% for Ether. This is in contrast to Schiff's comment because gold and Bitcoin are positively correlated instead of negative.
The negative relationship is observed during periods of negativity for Bitcoin
In February, the Bitcoin price dropped by about 7.5%, while Ether rose by more than 23%. During this negative period for Bitcoin, its relationships with stock indices contrasted with the one observed in January (a positive period of price). Bitcoin is correlated at 5.85% with Nasdaq and 21.3% with S&P 500.
In February, Ether increased its price and profit positively correlated with Nasdaq (20.2%) and S&P 500 (31.1%).
Accumulated profits for BTC, ETH, Oil, Gold, S&P 500 and Nasdaq in February 2020.
Throughout February, gold remained correlated at 21.1% with BTC, while Ether was correlated at 17.2%. The relationship between January and oil is similar, with correlations of 32.3% and 36% for BTC and Ether, respectively.
The correlation trend has been broken by recent market volatility?
Since March, both the accumulated profits of Bitcoin and Ether have been performing worse than the stock market. This trend follows Schiff's argument that, when riskier assets decline, Bitcoin will drop even more.
However, the profits of Bitcoin and Ether showed a positive positive correlation in the first 12 days of March, with gold at above 70% and between 66 and 69.5% with stock indices. The lowest correlation is with oil, 32% and 34%. This challenges the role of Bitcoin and Ether as safe haven assets under tough market conditions.
However, if we look at annual returns, even after the bloody Thursday, Bitcoin retains better returns than other risky assets like the S&P 500 or oil, although each one is negative. during this period.
Annual profit for BTC, Gold, Oil, S&P 500 and USD. Source: Skew
Investors are now aware that under negative market conditions historically, gold can still be a true safe haven asset. However, Bitcoin may be a replacement during these periods, while in other periods it seems to offer the best option for investors.
Mr. Teacher
According to Cointelegraph
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