The “correlation” between US stocks and bitcoin is rising

On February 24 Beijing time, Russian President Vladimir Putin officially announced that he would carry out “military operations” in Donbas, Ukraine. Subsequently, Ukrainian President Vladimir Zelensky announced that the country had entered a state of war.

As of press time, the spot price of gold stood at $1940, but bitcoin fell nearly 9% in 24 hours, now reported at $34891, Nasdaq 100 index futures fell nearly 3%, and S & P 500 index futures and Dow Jones index futures fell more than 2%.

With the sharp escalation of geopolitical conflicts, global financial markets began to respond. Gold prices soared, US stocks retreated, and bitcoin, regarded as “digital gold”, failed to walk out of an independent trend.

According to wind data, since the beginning of 2022, bitcoin has ranked the last in the performance of major global assets by 21.98%. In 2021, which has just ended, bitcoin ranked first in major categories of assets with a sharp rise of 57.8%.

Such a huge contrast is thought-provoking, and this paper will explore a core issue from the three dimensions of phenomenon, conclusion and reason: can bitcoin with a current market value of about $700 billion still be regarded as a “safe haven asset”?

Since the second half of 2021, the attention of the global capital market has focused on the rhythm of the Fed’s interest rate hike. Now the intensification of the conflict between Russia and Ukraine has become another black swan, affecting the trend of all kinds of global assets.

The first is gold. Since the fermentation of the conflict between Russia and Ukraine on February 11, gold has become the most dazzling asset category in the near future. At the opening of the Asian market on February 21, spot gold jumped in the short term and broke through US $1900 after eight months. Year to date, Comex gold index yield has reached 4.39%.

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Up to now, COMEX gold quotation has been positive for three consecutive weeks. Many investment research institutions believe that the reason behind this is mainly due to the expectation of interest rate increase and the results of changes in economic fundamentals. At the same time, with the recent sharp increase of geopolitical risks, the “risk aversion” attribute of gold is prominent. Under this expectation, Goldman Sachs expects that by the end of 2022, the holdings of gold ETF will increase to 300 tons per year. Meanwhile, Goldman Sachs believes that the price of gold will be $2150 / ounce in 12 months.

Let’s look at NASDAQ. As one of the three major indexes of US stocks, it also includes many leading technology stocks. Its performance in 2022 is dismal.

On November 22, 2021, the NASDAQ index closed above the 16000 mark for the first time in its history, setting a record high. Since then, the NASDAQ index began to retreat sharply. As of the closing on February 23, the NASDAQ index fell 2.57% to 13037.49 points, a new low since May last year. Compared with the record level set in November, it has fallen by nearly 18.75%.

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Finally, let’s look at bitcoin. Up to now, the latest quotation of bitcoin is around us $37000. Since the record high of US $69000 was set on November 10, 2021, bitcoin has retreated by more than 45%. During the sharp decline on January 24, 2022, bitcoin hit a low of us $32914, and then opened the sideways trading.

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Since the new year, bitcoin has briefly recovered the $40000 mark on February 16, but with the intensification of the conflict between Russia and Ukraine, bitcoin has closed down for three consecutive weeks. Year to date, bitcoin prices have fallen by 21.98%.

Since its birth in 2008 in the financial crisis, bitcoin has gradually been called “digital gold” because it also has some attributes. First, the total amount is constant. Bitcoin adopts blockchain technology and encryption algorithm to make its total amount constant to 21 million. If the scarcity of gold comes from physics, the scarcity of bitcoin comes from mathematics.

At the same time, compared with physical gold, bitcoin is easy to store and carry (essentially a string of numbers), and is even considered to be superior to gold in some aspects. Just as gold has gradually become a symbol of wealth from precious metals since it entered human society, the soaring price of bitcoin is in line with people’s pursuit of wealth, so many people call it “digital gold”.

“Prosperous antiques, troubled times gold.” This is the Chinese people’s understanding of wealth symbols at different stages. In the first half of 2019, it coincided with the start of the Sino US trade war. Bitcoin came out of the bear market and rose from $3000 to around $10000. The market trend under this geographical confrontation further spread the name of bitcoin “digital gold”.

However, in recent years, although the price of bitcoin has been rising in sharp fluctuations, and its market value officially exceeded US $1 trillion in 2021, reaching one tenth of the market value of gold (statistics show that the total market value of gold mined by 2021 is about US $10 trillion), the correlation between its price performance and gold performance has been weakening, and there are obvious signs of dragging the hook.

According to the chart data of coinmetrics, the trend of bitcoin and gold had a certain coupling in the first half of 2020, and the correlation reached 0.56, but by 2022, the correlation between bitcoin and gold price has turned negative.

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On the contrary, the correlation between bitcoin and US stock index is getting higher and higher.

According to the chart data of coinmetrics, the correlation coefficient between bitcoin and S & P 500, one of the three major indexes of US stocks, has reached 0.49, close to the previous extreme value of 0.54. The higher the value, the stronger the correlation between bitcoin and S & P 500. This is consistent with the data of Bloomberg. In early February 2022, Bloomberg data showed that the correlation between cryptocurrency and Nasdaq reached 0.73.

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From the perspective of market trend, the linkage between bitcoin and U.S. stocks is also increasing. The rise and fall of bitcoin and technology stocks for several times in recent three months, and even from the collapse of U.S. stocks in March 2020 to the decline of U.S. stocks in January 2022, the cryptocurrency market has not come out of an independent market, but shows the trend of rising and falling with some technology stocks.

So far in 2022, it is precisely the leading collection of technology stocks “faamng” that is close to the decline of bitcoin. The collection of six American technology giants has fallen by 15.63% year to date, ranking the penultimate in the performance of major global assets.

Combined with the smoke of the war, after the start of the Russian Ukrainian war on the afternoon of the 24th, the global risk assets fell together, US stocks and cryptocurrency were not spared, while the price of gold and oil began to soar, and the global financial market was dominated by the “smoke of war”.

Therefore, from the current market situation, bitcoin is more like a risky asset than a “safe haven asset”.

Bitcoin integrated into the mainstream financial system

When bitcoin was designed by Nakamoto, its positioning changed several times. In 2008, the mysterious man named “Nakamoto cong” published a paper in the name of bitcoin, introducing a point-to-point electronic payment system. From the naming, it can be seen that its initial positioning was a digital currency with payment function. However, as of 2022, only El Salvador, a small Central American country, has officially carried out the experiment of its payment function.

In addition to the payment function, one of the main reasons why Nakamoto created bitcoin is to try to correct the current situation of unlimited printing of money in the modern monetary system, so he created bitcoin with a constant total amount, which also leads to another positioning of bitcoin as “anti inflation asset”.

Under the impact of the global epidemic in 2020, the Federal Reserve chose to rescue the market in an emergency, start “unlimited QE” and issue an additional $4 trillion a year. Large American funds with a large amount of liquidity invested in stocks and bitcoin. All major funds, including technology companies, venture capital institutions, hedge funds, private banks and even family offices, chose to “vote with their feet”, Into the encryption market.

The result of this is the crazy rise in the price of bitcoin. In February 2021, Tesla bought bitcoin for $1.5 billion. The price of bitcoin rose by more than $10000 a day and reached the high price of $65000 in 2021. Up to now, wechat, a US listed company, has accumulated more than 100000 bitcoins and gray capital positions more than 640000 bitcoins.

In other words, the bitcoin whale, led by the large capital of Wall Street in the United States, has become the core force leading the market, so the trend of large capital has become the wind vane of the encryption market.

In April 2021, coinbase, the largest encryption exchange in the United States, was listed, and large funds have access to compliance. On October 18, the SEC will approve ProShares to launch a bitcoin futures ETF. The exposure of U.S. investors to bitcoin will be expanded again and the tools will be more perfect.

At the same time, the U.S. Congress also began to hold hearings on cryptocurrency, and the research on its characteristics and regulatory strategies became deeper and deeper, and bitcoin lost its original mystery.

Bitcoin has gradually been domesticated into an alternative risk asset rather than a substitute for gold in the process of being continuously concerned by large funds and accepted by the mainstream market.

Therefore, since the end of 2021, the Federal Reserve has accelerated the pace of raising interest rates and wanted to stop the process of “big release of water from the US dollar”. The yield of US bonds has increased rapidly, but US stocks and bitcoin have entered a technical bear market.

In conclusion, the initial situation of the Russian Ukrainian war highlights the current risky asset attribute of bitcoin. From the changing positioning of bitcoin in recent years, bitcoin is no longer recognized as a “safe haven asset” or “digital gold”.


Post time: Mar-14-2022