There’s now a strong correlation between traditional asset markets and bitcoin (BTC), the flagship cryptocurrency, according to an article recently published on the Wall Street Journal (WSJ).
Referencing data from research and analytics firm Excalibur Pro Inc., the WSJ noted that over the past five days, bitcoin has been trading at a 0.84 correlation to the gold bullion. As explained by Excalibur, a -1 correlation indicates there’s “complete inversion” (or no meaningful relationship) and a +1 means there’s a “perfect correlation.”
BTC Trading At 0.77 Correlation With VIX
Notably, bitcoin has been trading at about a 0.77 correlation to the Chicago Board of Options Exchange’s (Cboe) Volatility index (VIX). The VIX is a standard benchmark index used to assess volatility levels in the US equity markets. In the past few months, a relatively large number of institutional investors entered the crypto industry. This may have helped strengthen the correlation between the performance of traditional markets and that of cryptocurrencies, the WSJ noted.
Specifically, its report mentioned that Digital Currency Group subsidiary Grayscale Investments’ over-the-counter (OTC) exchange-traded-fund (ETF), the Bitcoin Investment Trust attracted $51 million in assets under management (AUM) - when it was first introduced in 2013. Towards the end of 2017, when cryptocurrency prices recorded all-time highs, Grayscale’s Bitcoin Investment Trust had grown to approximately $3.5 billion.
However, the sharp decline in crypto prices has now reduced the size of the Bitcoin Investment Trust to around $900 million worth of AUM. Despite the extended digital currency bear market, there’s still a fairly strong correlation between bitcoin and traditional markets. According to the WSJ, the positive correlation may also be partially attributed to a sizable increase in the amount of venture capital investments into various crypto and blockchain-related projects.
Over $2 Billion In VC Investments
In 2013, total VC investments in the crypto sector were only around $96 million, but these increased steadily to about $500 million in 2016. By the end of 2017, there were well over $2 billion invested in the cryptoasset industry by several large VC firms including Andreessen Horowitz’s giant $300 million a16z crypto fund and TechCrunch founder Michael Arrington’s $100 million crypto hedge fund.
The cryptoasset market may be able to attract more investments from institutional players in the future if a proper regulatory framework for digital currencies and blockchain technology is developed, the WSJ noted. The crypto sector may also grow if more digital currency futures trading options and ETFs are introduced, according to the WSJ.