The investment world is undergoing a major shift as it navigates through the sea of changes in the crypto-market. Bitcoin Spot ETFs are already available, indicating Bitcoin’s move into mainstream finance. This will bring Bitcoin closer to the conventional investment fabric. We’ll examine the tip of the Iceberg, trying to visualize its depth and the correlation between Bitcoin stocks and Gold. We will try to determine if the traditional markets are really driving Bitcoin away from its decentralized position, or if it’s possible for Bitcoin to maintain its unique course.
Kaiko data show that Bitcoin has a higher risk-adjusted return than traditional assets. Nvidia led with the highest returns on a risk-adjusted basis, while Bitcoin impressively trailed just behind, outpacing major traditional assets like the S&P 500, Gold, with its value surging over 160% in risk-adjusted terms.
According to the IMF Crypto Cycle & US Monetary Policy Study, 80% variation in crypto price and its increasing correlation with stock markets is attributed to this study. coincided Since 2020, institutional investors have entered the crypto market. Trading volumes on crypto exchanges by institutional investors grew more than 1,700% during the second and second quarters in 2020. According to the study, the US monetary policy affects the crypto cycle, just like global equity cycles, but surprisingly, only the US Fed’s monetary policy matters, not the other major central banks – probably because crypto markets are highly USD-dependent.
The 2023 Institutional Investor Digital Assets Outlook Survey indicates The report states that up to 5% AUM will be allocated to crypto by 64% of investors within the next three years. The report said that some institutions invested for the first-time in the last year while others increased existing investments. The study shows that 41% of asset management firms have increased their crypto investments, but only 27% of asset owners are increasing their investments.
Bitcoin was created with the intention of spreading power evenly, but recent studies have shown that it is being slowly dominated only by a small number of big players.
Changes in Correlation Dynamics
Interestingly, Bitcoin moves in sync with the S&P 500 and Nasdaq, with an impressive correlation. The correlation between Bitcoins and Gold has dropped dramatically in recent months, contrary to claims that investors view crypto as a hedge or safe haven against inflation. Gold traditionally plays this role.
Bitcoin’s correlation to Gold was 0.83 positive on November 7, 2023. However, it decreased to -0.1 by January 10, 2024 before rebounding at a slightly higher level of 0.14 positive on February 9, 2024. In the meantime, Bitcoin’s relationship with the S&P 500 saw a negative correlation of -0.76 on November 11, 2023, and then hit a positive correlation of 0.57 in January 2024. This shift from a negative to a positive correlation indicates that investors’ perception of Bitcoin is changing.
The Nasdaq, which is well-known for its technology and growth stock, displayed a variable relationship with Bitcoin. The negative correlation, which was -0.69 October 30, 2023, changed to a positive 0,44 in January. It appears traders are tying Bitcoin’s rhythm with the pulse of the tech industry, hinting at new investment strategies.
When the correlation between Bitcoin and traditional equity markets like the S&P 500 and Nasdaq increases, while its correlation with Gold decreases, it suggests that Bitcoin is behaving more like a risk-on asset rather than a safe haven. Investors are often more inclined to invest in stocks or digital coins when they feel adventurous, as it offers the potential for higher returns.
The price of cryptocurrency and equity could be aligned if institutional and retail investors were to simultaneously buy and sell these assets.
The approval of Spot Bitcoin ETFs seems to have increased its appeal for major investors. A large number are already planning to increase their Bitcoin game. Bitcoin’s entry into ETFs may make it more similar to stocks as these funds are large players in the world of stock.
Bitcoin and other cryptocurrency are freed from traditional boundaries. financial Systems could be compromised. These changes could also expose Bitcoin’s systemic risk, which is what it was created to protect itself from.
Closing Thoughts
We need to balance our excitement over the possibility of growth, as well as the fact that Bitcoin is not centralizedly controlled. As we consider how spot Bitcoin exchange traded funds could change Bitcoin’s position in the stock market and its current ties to stocks. Bitcoin’s move towards a centralized investing scene could shake the market. This will offer both bright opportunities and tough challenges.
Maria Carola is the author of this guest post. The opinions expressed by the authors are theirs alone. own The views expressed herein do not necessarily represent those of BTC Inc. or Bitcoin Magazine.
“This article is not financial advice.”
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Source: bitcoinmagazine.com