Although bitcoin is back up over $40,000 today, not everyone is hailing the good news as a long-term indicator.
Quite a few experts are looking at Bitcoin’s correlation to other assets and finding that there may be a bigger hit to the coin’s reputation than a temporary $40,000 break can fix.
Omkar Godbole at Coindesk points to all-time-low correlations between Bitcoin and gold, referencing the PAX Gold fund as a signal flare.
“(Bitcoin’s) 90-day correlation with PAX gold, a token backed by physical gold and with a value pegged to the price of gold, has slipped to a record low of -0.41, according to data tracked by Coin Metrics,” Godbole writes. “The 60-day correlation between Bitcoin and PAXG hit a record low of -0.5 early this month. The correlation flipped in February just as stagflation talks began doing the rounds and the Fed pledged to fight the dreaded high inflation-low growth situation with interest rate hikes. A reading of 1 indicates that the two assets or variables are moving in lockstep, while -1 implies the two are inversely correlated.”
Meanwhile, the market is seeing BTC tie tighter to market indices, at least according to some.
“This reflects BTC’s increasing correlation with macro stock indices as well as its recent behavior as a risk asset rather than a store-of-value, and points to price turbulence ahead as markets digest the impact of further inflation and liquidity withdrawals,” said Noelle Acheson, (head of market insights Genesis Global, which is affiliated with Coindesk) according to Godbole’s coverage.
All of this indicates that Bitcoin’s reputation as a safe haven for traders fleeing battered equities markets may be less deserved than we previously thought.
Will that harm institutional buy-in?
Many small investors look to what the whales and institutional investors are doing. Even with more vibrant on-ramps into the Bitcoin market, we could see larger downturns for the original crypto coin based on this hesitancy. Take note!