- Long-term bitcoin correlations with traditional asset classes remain low
- Bitcoin ETF may have “significantly” reduced the volatility during the recent sell-off
In the past few weeks during the COVID-19 pandemic, we saw the correlation between bitcoin and the stock market surging to a new high. However, according to Gabor Gurbacs, a digital asset director at VanEck, bitcoin’s correlation to gold also jumped in 2020.
Talking about the investment case for Bitcoin, in his latest report Gurbacs said, previously, because of bitcoin’s low correlation to traditional asset classes including broad market equity indices, bonds, and gold, it has been good for portfolio diversification.
But its correlation with traditional assets began to increase during the COVID-19 induced global market sell-off. And still, “a small Bitcoin allocation may have reduced volatility for 60%-equity/40%-bond portfolios.”
Even during sell-off, Bitcoin reduced volatility
Notably, Bitcoin’s correlation with gold reached levels never seen before in the past four years.
Over the past four weeks, Bitcoin’s correlation with gold was 0.49, 0.19 with the Nasdaq 100, 0.17 with U.S. bonds, and 0.15 with the S&P 500. Also, we saw Bitcoin’s correlation with emerging market currencies at 0.31, 0.27 with oil, and 0.18 with U.S. real estate.
Overall, in 2020, so far, Bitcoin’s correlation with gold is 0.42, 0.16 with the Nasdaq 100, 0.13 with U.S. bonds, and 0.13 with the S&P 500. As for its correlation with emerging market currencies and oil is 0.29 and 0.15 with U.S. real estate.
Coming onto the investment case, when having a proportional addition of 0.5%, 1%, and 3% allocation to bitcoin in a 60% equity/40% bond blended portfolio, although the YTD portfolio performance with a BTC allocation was only slightly better than the 60-40 blend, just a small addition of BTC to a portfolio “significantly” reduced the volatility.
This volatility reduction was even “more pronounced” during the market sell-off in mid-March. This means, even when crashing, bitcoin is a better bet. Gurbacs said,
“We conclude that while long-term bitcoin correlations with traditional asset classes remain low, in the short-term, the COVID-19 induced market sell-off increased bitcoin correlations with gold may potentially hinting to bitcoin’s increasing safe-haven status.”
Bitcoin ETF further helpful
A Bitcoin ETF, according to Gurbacs may have further “significantly” reduced the volatility during the recent sell-off.
Besides reduced volatility, ETFs offer daily proof of reserves (NAV), transparent holdings, transparent prices, high liquidity, proper tax documents, and investor protection, he said.
For now, there is no Bitcoin ETF proposal left for the SEC to review after rejecting the last one in February this year.
Recently, we reported that Kraken’s VIP traders and investors are hopeful of a Bitcoin exchange-traded fund (ETF) this year.
As per the exchange’s 2020 Sentiment Survey, a staggering 48% of respondents said “yes” to a Bitcoin ETF approval by the US Securities and Exchange Commission (SEC) in 2020 while the majority 52% still leans towards a “No”.
Regionally, 60% of South Americans, 51% of Europeans, 49% of North Americans, 46% of Middle Easterns, 30% Asians, and 14% of Africans comprise the “yes” people.