Bitcoin’s bond with the performance of U.S. stocks is increasing. Being the most popular digital currency, Bitcoin could become a sustainable investment asset.
Bitcoin’s correlation with stocks jumps to 2-year maximum. According to Nick Colas, co-founder of DataTrek Research, the correlation between the daily percent returns of the cryptocurrency and the S&P 500 is 33 percent on a 90-day basis.
Colas is one of the first Wall Street market strategists who began writing about bitcoin. He said that the previous high was much lower. In mid-December 2017, it made up 19 percent, and the long-run average for the 90-day correlation was negative 1 percent.
Bitcoin started gaining attention in January, 2016. It was brought into the public eye and surged investors’ interest. The currency hiked 2,000 percent in the 12 months through December to well above $19,000. CME and Cboe, the world’s largest futures exchanges, launched bitcoin futures products in December, making it easier for institutional investors to buy into the cryptocurrency trend, which boosted bitcoin’s popularity as well.
“Bitcoin’s attraction for institutional investors may increase correlation,” Morgan Stanley equity analyst James E. Faucette said. “Our conversations with investors certainly give weight to that view—which raises a key question: if Bitcoin correlation with the broader market fully materializes, does that limit its ultimate potential?”
Regulations concerning bitcoin as a sustainable investment asset are still uncertain. Moreover, the nature of the cryptocurrency is different from traditional assets. So it is too soon to draw conclusions. For now, if a correlation with stocks does exist, some analysts have suggested that cryptocurrencies such as bitcoin could be an indicator of appetite for risky assets such as equities.
“We don’t make a call on whether it’s going to go up or down but that it’s a risk in the marketplace, and it’s really far out on the risk spectrum,” Christopher Harvey, head of equity strategy at Wells Fargo Securities, said. “And as risk gets sold it just adds fuel to the fire, and that’s the concern.” He added: “If we’re right and risk starts to be bid again, it wouldn’t surprise us to see a bid in some of the crypto markets.”
Another expert, Thomas Glucksmann, head of APAC business development at cryptocurrency exchange Gatecoin, thinks that technological advancements and new investor products could lead to bitcoin’s great hike.
“Increasing regulatory recognition of cryptocurrency exchanges, the entrance of institutional capital and major technology developments will contribute to the market’s rebound and push cryptocurrency prices to all new highs this year,” he said.
According to CNBC, Glucksmann believes that cryptocurrency market could hit $1 trillion this year with bitcoin surging to $50 000. “There is no reason why we couldn’t see bitcoin pushing $50,000 by December.”
Bitcoin has recently seen a huge fall, dropping below $6,000 for the first time since mid-November. On Wednesday, with the cryptocurrency market stabilization, it was trading above the $7,000 level. The current price of Bitcoin is $8 317, according to CoinMarketCap.