DBS says Bitcoin No Longer a Fringe Asset, It is Now Fueling Volatility in US Stocks
The volatility in Bitcoin is now fueling the volatility in US stock futures, according to a study by Singapore’s DBS Group Holdings Ltd.
DBS’s Chief Economist Taimur Baig and Macro Strategist Chang Wei Liang wrote that S&P 500 contracts tend to register bigger swings after the leading cryptocurrency spiked up or down by 10% in the span of an hour.
Four trading days were analyzed in its study Dec. 28, Jan. 4, Jan. 29, and May 19 in relation to the S&P 500 futures.
The study showed that the S&P 500 are more positively correlated following a large crypto move, registering as 0.26 versus 0.19 in normal conditions. It’s, however, still a weak link.
DBS further found that the variance of returns on S&P 500 futures was also 42% greater than normal on those hyper volatile days.
“This suggests that broader equity sentiment could become more coupled with sentiment in Bitcoin markets for a temporary period of time.”
“Given the recent Bitcoin stresses, market participants may be wise to keep an eye on developments in this space.”
DBS’s analysis came out after in a recent note by JPMorgan strategists where they wrote that the cross-asset impact of the cryptocurrencies' massive downside move has been rather “mild” with less equity and credit drawdown.
Meanwhile, the DBS team concluded the $740 billion cryptocurrency is not a fringe asset anymore.
“Bitcoin is no longer the fringe asset that it once was, given the higher correlations and increased U.S. equity volatility that trail extreme moves in Bitcoin markets.”