Considered, that one of the key advantages of cryptocurrencies as an investment is the lack of correlation with most other asset classes. Is it so now, later 10 years after the emergence of bitcoin (Bitcoin)?
Bitcoin investment analysis relies on many factors, but the most important of them is just the price, volatility and correlation with other asset classes. Wherein, if a lot is written about the price and volatility of bitcoin, much less attention is paid to correlation, and in vain, Considering, how important is correlation analysis for investors, using crypto assets to diversify their portfolios.
Correlation with other assets is the most important factor in developing an effective portfolio, so let's try to figure it out, what do we know about this parameter and, что еще важнее, what we don't know about him.
What kind of correlation?
Important to remember, that there are two main types of correlations, which should be considered when working with cryptocurrency:
- Correlation between cryptocurrencies (for example, how the price of MTC changes relative to the ETH),
- Correlation between cryptocurrency and traditional assets (for example, how the price of MTC changes relative to $&R 500).
Today we will focus on the latter., although the first one also deserves attention.
Unfortunately, not very clear yet, how exactly the price of bitcoin and other cryptocurrency assets changes when the value of shares changes, bonds and raw materials, but nevertheless we consider, what to think about this topic.
Digital safe haven
When Bitcoin was young, many have argued, that this new digital currency will be a wonderful safe haven, alternative without correlation with traditional assets, unaffected by macroeconomic factors, that is, bitcoin is an asset, weakly related to the lows and highs of the stock market.
Is it true?
Certainly, there can be no absolutely unequivocal answer. Yes, before bitcoin and other cryptocurrencies were much less correlated with stocks, raw materials and even other currencies, but recently cases have been anointed, when the opposite pattern is observed, and many investors are wondering, is it really possible to hedge risks with digital currencies, associated with traditional assets.
Let's take a closer look at the possible connection of bitcoin with other markets using some recent data as an example..
В выпущенном в этом году отчете аналитики JPmorgan проанализировали возможные корреляции с позиций формирования диверсифицированного портфеля, evaluating cryptocurrencies the same way, like any other asset class - in terms of risk-reward ratio.
Certainly, they found, that the volatility of cryptocurrencies is much higher, than stock or raw material, but we already know this well. But it also turned out, what, although unclear, how digital currencies will behave in times of extreme shocks, in general they can indeed be used for diversification - in part because of their extremely low correlation with stocks and bonds: in the past five years, the correlation of the value of bitcoin with 5 &R 500, American government bonds, gold and other raw materials was almost zero.
At the same time, recently other experts have expressed their opinion more than once., that the correlation between crypto and traditional assets is increasing - it seems, it really is, but so far it is still extremely low.
В своем майском отчете компания установила, that the correlation of bitcoins with stocks and bonds was 0,12 And 0,25, respectively, - this is no longer zero, as happened, но и не так мало (perfect correlation - 1). For comparison, according to their own data, the correlation between US and global stocks over the same period was 0,88.
Sifr Data also tracks this parameter for cryptocurrencies., и по состоянию на 18 July 90-day correlation between BTC and S&P 500 is equal to −0.27, which shows a constant weak connection between cryptocurrency and the stock market, while the correlation of BTC with the gold market, равная −0,1, демонстрирует отсутствие корреляции.
This low correlation is due to various cryptocurrency growth drivers. (investor acceptance, changes in legislation, etc.. d.) and traditional ( the economic growth, interest rates and corporate profits) markets.
Maybe, as Bitcoin grows in popularity as a user, and among investors, особенно институциональных, its correlation with traditional markets will increase.
How exactly will it be arranged, will depend on many factors, including those listed above, but understanding that, how this new asset class can serve to diversify a broad portfolio, will not come right away.
Some things never change
Despite low correlation values between cryptocurrencies and other asset classes, нужно помнить, what, like promotions, cryptocurrencies may be overvalued. However, excessive noise around some digital assets (and here we mean, for example, 1СО) не означает, that they should be considered too risky or volatile from an investment point of view.
It is important to understand, that the relatively small size of cryptocurrency markets makes it difficult to analyze correlations of this kind.
The new digital asset class has many real-world applications and benefits, valuable for investors, and low correlation with other markets is one of the most important such advantages.
In this way, though, as always when investing, there are no perfect solutions, and there is always a risk. Nevertheless, it can be stated, that today cryptocurrencies are a good solution for diversifying investments.
What is correlation
The correlation of assets with each other is, in other words, their interdependence, when a change in one asset entails a change and the associated.
Correlation ranges from -1 to +1:
- If the correlation is 1, then it means, that two assets are moving absolutely synchronously, that is, they react equally to all external factors.
- If the correlation is 0, then it means, that the movement of assets relative to each other is completely independent.
- If it is equal -1, then it means, that assets are moving in opposite directions.
Пример положительной корреляции – цена на нефть и природный газ, or an increase in household income and an increase in the cost of housing. Examples of negative correlation - time wasted and academic performance, or energy prices and Japanese yen quotes.
In your investment portfolio, you can choose to buy currency, having a minimum correlation coefficient with those, what already is.
In order to buy cryptocurrency or sell and go to the cash, you need to understand market sentiment. If market sentiment is positive and euphoria prevails, then the capital partially leaves the crypto market, его капиталоёмкость падает и courses криптовалют снижаются. During such periods, you can partially go to the cash and refrain from shopping..
If panic returns to the markets and markets fall (this is especially true of stock markets and oil), then this could mean an influx of new money into the crypto market, which means, you can try to buy at the beginning of this movement with the expectation of continued growth.