Cryptocurrency – the new “digital gold”?
Experts from City A.M. analyzed how the dynamics of bitcoin correlates with gold prices during the crisis.
Over the past 5 years, the S&P 500 has dropped 7.5% or more five times. In each of these cases, analysts examined how the correlations between gold and the S&P 500, bitcoin and the S&P 500, and bitcoin and gold changed.
The correlation between gold and the S&P 500, as expected, showed up. Outside of major declines, gold and the S&P 500 have only a slight positive correlation of 0.060. However, when the S&P 500 falls, so does its average correlation with gold, down to -0.134.
The experts concluded the following: gold in a downtrend justifies its status as a defensive asset.
The same cannot be said for bitcoin or cryptocurrencies in general. Outside of the stock market downturn, Bitcoin and the S&P 500 had a slight positive correlation of 0.129. However, amid the past five stock market downturns, the correlation between Bitcoin and the S&P 500 jumped to 0.258. Only two of the last five recessions have been negatively correlated. At the same time, gold has shown a negative correlation with the index in four of the last five declines.
What about bitcoin and gold? In rising stock markets, Bitcoin and gold have a slight positive correlation of 0.057. Against the backdrop of stock market crashes, the correlation rose only marginally to 0.064.
Thus, regardless of the state of the stock markets, the correlation between gold and bitcoin is close to zero.
Based on data from City A.M. experts, the cryptocurrency does not act like digital gold. In times of panic, the correlation between cryptocurrency and the stock market actually increases.
Thus, the cryptocurrency served more as an “anti-hedge”, and its correlation with the S&P 500 grows as stocks fall, the analysts concluded.