Recent Bloodshed in Stocks Was Different Than Drop in Bitcoin Price

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As the panic around the spread of the Covid-19 virus continues to engulf the globe, and traditional markets react negatively, a light is being shone on Bitcoin. Questions surround why the supposed anti-correlated asset is not flourishing. However, the correlation between the stock market collapse and the fall in the Bitcoin price should be put into perspective.

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The S&P 500 at the start of the week dipped 2,000 points. [CNBC] This is something that has not been seen since the 2008 financial crisis, and it also represents a 7.6 percent loss in value. Meanwhile, the fall in Bitcoin’s price over the same 24 hours equates to a 5 percent loss.

These two percentage losses may seem close on face value. But a 7.6 percent loss for one of the world’s most popular stock market indexes actually represents about a 41 percent loss for Bitcoin if historical volatility is taken into consideration, as described by Hunter Horsley, BitWise Invest CEO in the below tweet.

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To call the current stock market collapse correlated to Bitcoin’s dip in price would be an oversimplification. Bitcoin is a known volatile asset that is prone to swings of five to 10 percent on regular occasions. This dip in the price of Bitcoin is not something that would affect investors in the same way that a 7.6 percent drop in the S&P 500 would.

No case for Bitcoin/stock market correlation

Bitcoin’s sudden bearish turn starting around the end of February – after a two-month climb from the beginning of the year – has come at a very poor time for the global financial markets. Recession fears still loom across the globe, and the effect of the Covid-19 outbreak is accelerating and catalyzing disastrous market movements.

For investors, safe-haven assets are the order of the day. But even gold, the most reliable safe haven, has felt the sting of the market during this financially uncertain time. Those with a cryptocurrency inclination or interest have looked to see how the digital coin has held up during this period, and unfortunately, it has not covered itself in any sort of glory.

Yet, the fall of Bitcoin’s price does not appear to be correlated to what is happening in the traditional markets. There are suggestions that a PlusToken stolen coin sell-off is at the root of the latest fall, and other theories are out there, but no one knows for sure.

Lacking Negative correlation

If it can be theorized that Bitcoin is not correlated to the stock market and those markets facing huge pressure, then the hope would be that the cryptocurrency would play out like digital gold, something it has been labelled often.

However, Bitcoin – in the eyes of traditional investors anyway – remains an asset to invest in during times of greed. In this situation of heightened fear, institutional money has no inkling to bet on Bitcoin’s ability to be a safe haven, and it is rather being shelved as risky – and left there.

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Julian has had a long interest in financial technology, especially cryptocurrency and blockchain. He studied to be a journalist and then decided to marry his passion for fintech with his skill in writing to report on this ever-changing and rapidly moving space.

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