Bitcoin Stages Positive Co-relation With Stocks: Is It Really A Safe-Haven Asset?

Bitcoin which is a digital asset and one of the most popular cryptocurrency is being doubted for its safe-haven appeal. This is owing to its recent fall which came alongside sell-off in the US stocks on Friday when news of President Trump contracting coronavirus dragged down riskier assets.

Bitcoin shows positive co-relation with stocks as per the current trend

Much of the fall in bitcoin price off late is attributed to the positive co-relationship between bitcoin and S&P 500 index. However as per a Bloomberg report that mentions Bitcoin's 14-day Relative Strength Index (RSI) to be at 45 and equity index at 51 suggest that the fall is much deeper for Bitcoin.

From its August high, bitcoin has retreated lower by as much as 15%, while equities in the US have contracted by 6% from its September peak.

Market stability is required for getting funds into both equity and digital currencies including bitcoin

"Bitcoin has stayed range-bound despite
a slew of positive news, largely because there is not enough inflation due to weak aggregate demand. We need Bitcoin's behavior to match its narrative before we see a breakout", said the report citing Meltem Demirors, chief strategy officer of CoinShares.

We need more clarity on the election cycle and additional stimulus to help get things moving again in equities -- and also in Bitcoin," she added further.

Other digital coins also show a similar declining trend:

Weighing in huge correction amid high uncertainty now push up even more on Trump's contraction of the disease, the US volatility index (The CBOE Volatility Index) jumped the most on Friday. Also, on the sidelines bitcoin perceived to be a safe-haven i.e. supposed to give gains amid uncertain environment receded lower by over 2 percent to $10387. Other cryptocurrencies including Dash, Bitcoin Cash and Litecoin fell too.

Bitcoin rallies 50% so far in 2020

In the year 2020 thus far bitcoin even surpasses the gains from precious yellow metal, gaining as much as 50 percent. Nonetheless for the September month, which has also been its first since March's global market rout, it dropped a huge 8%. 

 

 

 

Outlook for bitcoin going ahead

Demirors sees Bitcoin to stay range-bound in the near-term. Signs of a change could first be reflected in the options market, she said.

 

Bitcoin seen as a leader amid shift to digital money and stores of value

As per a Bloomberg Intelligence Analyst Mike McGlone Bitcoin could see an upward support when the upside for equities and bonds seem capped. The coin is "growing up fast" and many of its adoption indicators are positive, he mentioned in a note.

"Bitcoin is unique due to its limited supply, which unlike most assets isn't influenced by prices, tilting the bias toward appreciation," McGlone said. "  It appears as the leader in the early days of a paradigm shift toward digital money and stores of value. It may fail, but we see that as unlikely", he added. 

 GoodReturns.in