Key facts:
The correlation of BTC and traditional stocks is close to 1, indicating that they move about the same.
The BTC-gold correlation coefficient is just above zero. Both markets are further apart.
Since July 2021, bitcoin (BTC) has gained ground among investors as a risky asset, even more so than an inflation hedge or store of value, according to Bank of America (BofA).
In a research note from the US bank’s cryptocurrency and digital assets division cited by CoinDeskhighlight that, as of January 31, the correlation between bitcoin and the S&P 500 stock index and the Nasdaq 100 index, hit record highs.
Meanwhile, the correlation between bitcoin and gold, the precious metal that is generally seen as an inflation hedge and store of value, remained near zero since last July.
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According to specialists, the characteristic volatility of bitcoin has fallen since 2013, but still remains well out compared to the S&P 500, Nasdaq 100 and gold.
For them, the volatile price suggests that there is little chance that BTC will be adopted as an asset against inflation, at least for investors in developed countries.
The story is not the same for those who live in inflationary countries, such as Venezuela or Argentina, where the pioneer cryptocurrency can easily become an asset that allows shelter against the growth of the inflationary indexthey specify from the BofA.
bitcoin correlations
What the BofA is saying makes sense if you take into account that, at the close of February 4, 2022, the correlation coefficient between bitcoin and the S&P 500 index was 0.54, according to what the data shows. Coin Metrics.
This is especially important because it indicates that both assets could be moving at a more or less parallel pace, even more so than is usually estimated. If the correlation reached 1, it would mean that both move in unison.
And it is that, in general, the correlation coefficient between BTC and that important Wall Street index has shown fluctuations. However, and as Coin Metrics shows, the correlation of both assets has registered an upward trend since the middle of last year.
For clarification, the correlation coefficient is positive when the index is between 0 and 1, as is now the case with bitcoin and traditional market indices. If the coefficient goes from 0 to –1, the correlation is negative.
Something similar occurs with the correlation of bitcoin and the Nasdaq 100 technology index. According to the latest agency report Bloomberg on that coefficient, the figure was about 0.66.
Bloomberg agreed with digital asset data provider Kaiko that in January it reported that the correlation between BTC and the two stock market indices mentioned had reached its highest levels.
As reported by CriptoNoticias, the respective correlations with the S&P 500 and the Nasdaq 100 increased steadily, to close the week from January 3 to 7 with values close to 0.6. That meant floods of 200% in two months for that coefficient.
The story is completely different in the correlation of bitcoin and gold. According to Coin Metrics, this coefficient is about 0.036, as of the close of January 28, 2022, the last update of that indicator.
Being above zero, but only by a little, indicates that both assets are moving in the same direction, but without as much influx as stocks do. They are, in the end, separate paths, according to investors.
What the graphs show validates the BofA assessments. For investors, bitcoin may not be seen, by some investors, as an asset with which they can take refuge from inflation, but as one of risk, with which you can win – and lose – money.