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Bitcoin vs. Stocks, Gold et al: Any Correlations You Can Hang Your Hat on?

by Tony Carrion
Updated: April 16, 2020

Hi, this is Tony Carrion. Not surprisingly, in the wake of the Coronavirus pandemic, the financial news has been drawing relationships between the price action in stocks, gold and Bitcoin as these headlines show.

While certainly there can be reactions to headlines, RN Elliott established years ago that news doesn't drive market prices, but that market prices adhere to the Wave Principle. To take a look at possible correlations between Bitcoin and other asset classes we made up this correlation matrix. Looking at historical correlations from when Bitcoin started trading 10 years ago as well as three year and one year timeframes. As the matrix suggests, the correlations haven't always been consistent. While there have tended to be positive correlations between the U.S stocks as represented by the S&P 500. Other than on a historical basis, the U.S dollar and yields on 10 year treasury notes have tended to be negatively correlated to Bitcoin. Gold and Bitcoin have tended to show some positive correlations as we move into the one year and three year timeframes. One reason for the positive correlations is that Bitcoin and stocks are considered risk assets, whereas the dollar and treasuries are considered safe havens. Gold wears a dual hat where on the one hand, it's considered a store of value and on the other and instrument of speculation. But other than some positive correlations, it would be risky to base investment or trading decisions just based on correlations alone.

Although Bitcoin and the S&P 500 have made highs and lows proximate to each other, particularly during the most recent time period. One big difference is that Bitcoin underwent an 82% bear market, whereas U.S stocks are just beginning a new bear market. Looking at Bitcoin and gold, while there have been similar headline triggered reactions recently, the patterns are clearly distinct from one another. And one would be taking unnecessary risk in basing a trading strategy just considering positive correlations alone. Which as we've seen can vary from one time frame to the next. Thanks for watching.

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