Fundstrat’s Thomas Lee Shares Bitcoin and MSCI Emerging Markets Index Market Correlation
There Seems To Be A Correlation Between MSCI Emerging Markets Index And Bitcoin Market
The co-founder and chief financial adviser of Fundstrat Global Advisors, Thomas Lee, showed a correlation between MSCI emerging index and the price of Bitcoin over the past year. Not only is there is a noticeable correlation, with the MSCI peaking in January 2017 around the same time as the crypto and Bitcoin markets.
Not only does Lee think that there is a correlation but he also thinks that there is a causation. Lee on CNBC points to mining and the network effect as drivers of bitcoin’s value, but he expanded on that theory, noting that “macro factors” are also at work in network value.
Lee dug up a correlation between the MSCI Emerging Markets Index and the bitcoin price, one in which a pattern has developed between the assets. The MSCI was launched in 1988 and boasts more than $1.9 trillion in assets benchmarked to the MSCI Emerging Markets Index suite.
In the above illustration, the orange line depicts the MSCI Emerging Markets Index, which had a bull run at year-end 2017 even as the bitcoin price was peaking. Meanwhile, the MSCI Emerging Markets Index, like the bitcoin price, has been under pressure for much of 2018.
Lee’s theory is two-pronged, comprised of macro hedge funds, which are playing an increasing role in the crypto market at exchanges like BitMEX, and the ‘wealth effect,” which reflects emerging market local investors who have less money to invest in bitcoin when their respective stock markets are in decline.
The MSCI emerging markets index is essentially a weighted index of the combined stock market caps of Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. These countries’ stock markets are considered less developed and riskier than fully developed countries but can lead to greater gains than typical stocks.
The emerging markets index and Bitcoin markets have a very obvious and strong correlation. Lee says the causation is that hedge funds put money into more risky investments like the MSCI and Bitcoin at the same time, and when hedge funds divest from the MSCI, they also take holdings out of Bitcoin and put them into more mainstream stocks and assets.
Lee maintains his bullish forecast a bitcoin price of around $20,000 by year-end, reminding investors that bitcoin’s yearly gains tend to boil down to the 10 best trading days of the year.