New Wall Street Journal Report Shows Bitcoin Has a Strong Correlation With the Gold Market
It seems that Bitcoin (BTC) has a stronger correlation with gold than previously supposed. According to an article released by The Wall Street Journal (WSJ), Bitcoin had a strong correlation with gold in the last few days.
As data from Excalibur Pro Inc. shows, Bitcoin had a 0.84 correlation to gold during the last five dates. In this scale, -1 indicates a complete inversion and +1 a perfect correlation. In general, a 0.84 can be considered a strong correlation. At the same time, there was a 0.77 correlation as well with the Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX). The VIX index measures the stock market’s expectations of volatility.
According to Alex Krüger, a recognized crypto analyst, short-term correlations between BTC and the S&P 500 are unstable and fluctuate around zero. Furthermore, the 180 day correlation between the S&P 500 and Bitcoin stands right at 0.
As of late bitcoin has been positively correlated to the S&P 500. However, short term correlations are unstable and fluctuate around zero, and the 180 day correlation stands right at 0. pic.twitter.com/AW1GdQPLMV
— Alex Krüger (@krugermacro) December 3, 2018
The WSJ offers some explanations about why this happened in the market. The first thing they say is that there was a larger influx of institutional investors in the cryptocurrency market.
For example, one of the companies investing in Bitcoin is Grayscale Investments. According to the WSJ, the company had $51 million in assets under management in 2013. However, by the end of 2017, it handled $3.5 billion. After the bear market experienced in 2018, the company has $900 million assets under management.
Another important thing to take into account and that the report shows is related to venture capital (VC) investments. The WSJ reports that back in 2013, VC investment in the most popular virtual currency and the blockchain industry was close to $96 million. In just three years, this amount grew over 5 times and reached $500 million in 2016. In 2017, VC investment kept growing reaching $2 billion.
At the same time, the cryptocurrency space is trying to create institutional-grade infrastructure for traditional and large investors to enter the market. Furthermore, the U.S. Securities and Exchange Commission (SEC) could soon approve the first Bitcoin Exchange-Traded Fund (ETF) in 2019.
The Intercontinental Exchange (ICE) is one of the firms that is going to launch a platform known as Bakkt and that is specifically designed for institutions. Moreover, Fidelity Investments opened a new digital assets brand that will be working with cryptocurrencies as well.
In order for companies to keep entering the market, it will be necessary for regulatory agencies to keep creating clear legal frameworks around blockchain technology and virtual currencies. Some of these countries that are working in clear environments for digital assets are Japan and malta.