Bitcoin is risky, but it has the advantage of being a standalone financial asset
Is there a relationship between stocks and Bitcoin (BTC)? Looking at recent developments in the Bitcoin and equity markets, particularly in these troubled times, many would be tempted to respond spontaneously in the affirmative. A wise trading specialist, crypto trader Scott Melker thus delivers his hypothesis around the question ; Despite the risk that it sometimes represents, Bitcoin deserves by its autonomy to enter the perimeter of any investor.
Bitcoin and stocks: Different risk, same Combat?
For the uninitiated and even for some investors, Bitcoin (BTC) might appear to have a close connection to the equity markets. The high volatility and the regular fluctuations of the first of the cryptos can indeed quickly make think of the stock market through which the speculation, the jumps and the retreats of the values of the assets are current currencies.
Scott Melker confirms for his part that the hypothesis of a correlation between the stock market and that of Bitcoin is according to him, completely unfounded.
The one who is also known as the Wolf of All Street admits in a Twitter post that he has been following the evolution of the first cryptocurrency since its appearance in 2009.
he underlines thus that if a certain correlation was possibly noticed between the traditional market of actions and that of Bitcoin , this situation was never maintained in the duration. For the trader, there is no argument to establish a correlation between these two types of assets.
To his 84,000 followers, Melker recalls that a mathematical formula makes it possible to compare 2 assets on a scale ranging from - 1 to 1.
If 1 means that the two variables are positively correlated, - 1 indicates that their correlation is negative, 0 indicating therefore that there is no correlation.
According to Scott Melker , one of the eToro reports on quarterly results for 2020 indicates, for example, that the correlation between BTC and SPX - the index of 500 large listed companies of Standard & Poor - was just 0.59 in February. However, underlines the trader, as soon as the stock market crisis appeared following the expansion of the Covid-19, the correlation between BTC and gold increased, reaching a value of 0.72.
For Scott Melker , the evolution of the price of BTC in the days following the crash of March 12 also helps to confirm the lack of correlation between the market for the first crypto and that of stocks. If the value of Bitcoin fell during the week of March 12, the SPX fell more than 7 days later. Moreover, when BTC then started to strengthen following the crash, the SPX index continued to decline. Trader Scott Melker sees a glaring disparity between the Bitcoin and equity markets.
Bitcoin is therefore a very distinct asset, and although it presents more risk, its traders are exposed to vagaries which are not systemic as it prevails for investments made in the stock market. With BTC, the risk is idiosyncratic, which is why it is always interesting for traders to hold it in the portfolio in order to take advantage of this lack of correlation.