In this world, there is no perfect correlation. There are assets that tend to move in the same direction. There are assets that tend to move in the opposite direction. And there are assets whose movements show no apparent relationship. But we cannot see this in absolute terms. They are usually statistical correlations. Which means that, from time to time, there are “atypical” periods. In other words, a couple of candles in dissonance is not enough to decree the definitive break of a correlation.
It is no secret to anyone that the Bitcoin community is quite idiosyncratic. So quite often there are quite absurd situations with this thing of correlations. Due to the strong ideological bias, many users tend to accept the facts selectively. That is, they generally accept only what confirms their preconceptions. And they ignore what you don’t. East “cherry picking” It’s very common. For example, everything that has to do with the dollar, Wall Street and the Federal Reserve is often viewed with rejection. And everything that has to do with gold and libertarianism is usually viewed with greater sympathy. The only exception is when gold is presented as a direct competitor to Bitcoin. Of the rest, they are brothers of the same mother.
We must remember that gold is an asset traditionally seen as a “safe haven” and an “inflation hedge”. In many ways, it is seen as a hedge for disaster. It is based on fear and feelings against the system. Historically, gold has been the asset of choice for libertarians, anarcho-capitalists, and conservatives, because it aligns perfectly with classical liberalism. Bitcoin is a puppy of the same litter, but from the digital age. The demographics are different in terms of the age of their participants. On an ideological level, however, bitcoiners are not that different from gold beetles.. They are cut from the same cloth.
At times, Bitcoin’s existential crisis is so absurd that it sometimes borders on the comical. Personally, I find it quite funny. It reminds me of the story of the hippopotamus who wanted to be a zebra. He dreams of being a zebra. He tells everyone that he is a zebra. And he feels like a zebra. But the problem is that he is not a zebra. He is a hippopotamus. I always run into people who see a very strong correlation between Bitcoin and gold. However, the graph could not be more uneven. But there is vehement insistence on kinship. The opposite occurs with Nasdaq. Both graphs are practically identical in appearance. However, a breakout of a couple of days is enough to declare a definite and radical breakout. It is the story of the hippopotamus. The narrative does not always fit the facts. Then, the facts are reinterpreted to fit the narrative.
Things are as they are. They are not what we want them to be. Bitcoin has always been correlated to the S&P 500 and Nasdaq. What happens is that in the past this correlation was not so strong. And it was appropriate to say that there was no correlation. Because this one was pretty weak. It could be seen in longer periods. But it was not so evident in shorter periods. Why? In the beginning, this community was dominated almost entirely by retailers. It was a less liquid and more fragmented market. And ideology played a much bigger role. This has been changing over the years. Now we have more investors, more speculators and more institutions. In other words, greater diversity and a community more in tune with the other financial markets. So, the community is less “atypical”. Smaller niches can act in more peculiar ways. Nevertheless, larger markets are more interconnected and tend to behave like large markets.
On Twitter, we listen to what others are telling us about Bitcoin. But the big capitals pay more attention to what Bitcoin actually does. And what Bitcoin actually does is go up and down quite violently. I am referring, of course, to volatility. Volatility allows us to obtain great returns. But it also exposes us to great risks. Volatility is opportunity. But volatility is also a risk. Here I am talking specifically about financial risk. The libertarian repertoire is very important to libertarians. But, For many, Bitcoin is an investment and nothing more. A technology. Not a political party.
Bitcoin is considered an asset risk onbecause it behaves like an asset risk on. The scarcity of the code, the computing power of the network and the characteristics of the protocol take a backseat. The price is king. As simple as that. Price is the most important thing for most investors. If people think the price will go up, they buy. If they think the price is going to go down, they sell. Bitcoin is a code in a database. The code itself is not very relevant. What really matters is what that code represents. And that code represents a rate of change. Bitcoin is its price. And it is what most occupies the minds of most of its investors. What are the most searched phrases on Google? Freedom? Uncle Sam down? Monetary emancipation? Libertarian revolution? Milton Friedman? Ron Paul? We all know the answer: The price of Bitcoin. The true master and lord of this space is not doctrine. It is greed.
Price is not defined by inventory or flow. It is defined by supply and demand. Is not the same. In other words, the market is a battle between buyers and sellers. If the buyers win, the price goes up. And if the sellers win, the price goes down. Of course, not all battles are the same. There are battles that are won with few soldiers. And those victories are undoubtedly recorded. But they tend to be temporary victories. I mean the volume. If volatility reveals doubt, volume reveals conviction.
During Sunday night and Monday morning (Eastern Time), Wall Street was closed. Suddenly, a two-hour bull rally mysteriously breaks out of the consolidation channel. It could be said that the optimism was generated in Asia. This is assumed by the schedule. AWell, that weekend spark came as a big surprise to the markets waking up on this side of the world. Consequently, bullish aftershocks were generated as a reaction in the coming days.. Will the volume needed to sustain those gains be achieved?
What was the first piece of news that jumped out of my phone first thing Monday morning? “Bitcoin has finally decoupled from stocks.” I must confess that this conclusion struck me as a rather hasty exaggeration. We have months sharing a correlation. A couple of days or weeks of decoupling is not enough to redefine relationships. Calm down, people. Although it is true that these last few days contradict the pattern we had, we still need further confirmation. It takes time to start talking about radical changes. Good news. But time is the true sign of victory.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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