Bitcoin Is Trading at Strong Correlation With Gold, WSJ Claims

  • Recent Wall Street Journal (WSJ) article notes there's a strong correlation between bitcoin price and traditonal assets markets. 
  • WSJ cites data from Excalibur Pro Inc, noting that the correlation between bitcoin price and traditional markets had strengthened despite bear market. 

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.

Time to Be ‘Cautious or Short' Bitcoin, Says Bollinger Bands Creator

Francisco Memoria

John Bollinger, creator of the popular technical analysis tool Bollinger Bands, has tweeted out it’s time to be “cautious or short” on the price of bitcoin, after the cryptocurrency’s price dipped below $10,000 for the third time since the so-called black Thursday.

On social media, Bollinger pointed out that bitcoin’s last move p over the $10,000 mark, which came shortly after U.S. President Donald Trump finished a speech on law and order in which he vowed to take “immediate presidential action to stop the violence” and said he was “mobilizing all available federal resources — civilian and military — to stop the rioting and looting,” was a head-fake.

A head-fake, Investopedia writes, occurs when the price of a security moves in one direction initially, but then reverses its course and moves in the opposite direction. These trades occur most frequently at key breakout points – for bitcoin, a key point was the $10,000 mark.

The price of the cryptocurrency dropped suddenly after breaking its key breakout level earlier this month over a flash crash on BitMEX that saw its price dip to $8,600 before it started recovering. CryptoCompare data shows that bitcoin is now trading above $9,600, but that since the March 12 coronavirus-induced market crash it has tested the $10,000 mark three times already.

Bollinger, it’s worth noting, has a decent track record looking at cryptocurrencies. In October 2019 the analyst accurately said the price of BTC dropping to $7,300 was a head-fake, and the price of the cryptocurrency then moved up in a significant rally to $9,500.

In April of this year, Bollinger tweeted out BTC was “moving into squeeze territory,” shortly before the cryptocurrency’s price started surging. He was, however, caught off guard by the Black Thursday sell-off, as were most investors and analysts.

It’s worth noting many in the cryptocurrency space are still bullish long-term. As reported early BTC developer Adam Back – who some believe could be Bitcoin creator Satoshi Nakamoto – has said he believes the price of the cryptocurrency will hit $300,000.

Featured image via Unsplash.