Bitcoin Correlation with Stocks Declining: Analyst James V. Study
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Bitcoin’s Correlation with Traditional Financial Assets
Analyst James V. discovered that Bitcoin’s correlation with Ethereum is high, while its correlation with gold is low. The data reveals that the S&P 500 and gold have negative correlations of -0.05 and -0.12 with Bitcoin, respectively. On the other hand, the US dollar and the Nasdaq have positive correlations of 0.04 and 0.12 with Bitcoin, respectively. Notably, Bitcoin and Ethereum exhibit the highest positive correlation at 0.70.
Bitcoin as a Distinct Asset Class
The study’s findings suggest that Bitcoin is a distinct asset class due to its weak or negligible correlation with major traditional financial assets. This independence implies that Bitcoin’s performance is unlikely to be significantly affected by the volatility of other assets, especially those in traditional finance, such as stocks and precious metals.
Potential Benefits of Bitcoin’s Decreasing Correlation
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The decrease in Bitcoin’s correlation with stocks is seen as a positive development, making it an attractive investment option for diversifying portfolios. This correlation may continue to decline in the coming months, driven by recent developments in the cryptocurrency space, including the deposit of Bitcoin ETFs by major financial institutions like BlackRock and Fidelity.
Optimism Surrounding Bitcoin ETF Approvals
Although the US Securities and Exchange Commission (SEC) has not yet approved a spot Bitcoin ETF, there is widespread optimism within the Bitcoin community that approvals are on the horizon. The approval of a Bitcoin ETF could support Bitcoin prices and provide institutions with a way to diversify into the world’s most liquid crypto asset, potentially leading to high growth in the future.
Cautious Outlook and Long-Term Optimism
Analysts remain cautious about potential macroeconomic factors that could impact Bitcoin prices, such as changes in monetary policy. However, the long-term outlook for Bitcoin remains optimistic due to its deflationary nature and increasing adoption. In the second quarter of 2024, the Bitcoin network will adjust its emissions, reducing miners’ rewards and increasing the scarcity of the currency.
