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We spoke with Mike Alfred, Co-Founder and CEO of Digital Assets Data, about weekly happenings on the market and the correlation between Bitcoin and gold.
With the Dow and S&P 500 rallying two days in a row this week off the back of positive headlines that indicate the slowing spread of the coronavirus, investors seem to be more enthusiastic than before. Even United States President Donald Trump claimed that, over the previous four days, the stock markets increased the most in “more than 50 years.”
This means that investors’ confidence in the country’s economy is improving and that the demand is increasing, Trump asserted at the Coronavirus Task Force press briefing.
“There’s something good going to happen, I really believe that. We have to get back,” he stressed.
However, investors in cryptocurrencies might be surprised by the Bitcoin and other altcoins movements these days. Mike Alfred, CEO and Co-Founder of Digital Assets Data, fintech data company that builds enterprise-grade software for crypto hedge funds, commented on how Bitcoin prices are expected to follow suit. Mike is an experienced entrepreneur, previously founding Brightscope, a financial information company, where for nine years he and his team provided insights to traditional asset managers, brokers and financial advisors.
Bitcoin as Digital Gold
“It seems like the Bitcoin community is still relatively gun shy and nervous about a retest of the lows, which is fairly bullish for the price. I foresee those who expect prices to go back down to $3,800 will have to capitulate and buy, which will give Bitcoin prices another boost over the next few months. The Bitcoin community tends to be unnecessarily bearish every time Bitcoin hits trough prices and almost invariably the market does the opposite thing of what seems most logical in the short term with prices bouncing back up”.
However, since we are listening to the stories of Bitcoin being digital gold, we were pretty surprised that the largest cryptocurrency seemed to follow the traditional stock market more than the price of gold.
Bitcoin as Safe Haven in Medium to Long term
Alfred explained to Coinspeaker that, since the beginning of the year, gold has kept a positive correlation with Bitcoin, with this correlation spiking to as high as 55% during the crash (“Black Thursday”) that we saw across most markets in mid-March.
“Over this same time period we saw the S&P 500 dramatically increase in its correlation with Bitcoin as well after showing a negative correlation earlier in the year. Since the crash, both gold and the S&P have stayed highly correlated to Bitcoin, giving validity to the old saying that during a crisis “correlations go to one.”
Alfred also noted that when looking at short time horizons during a time of crisis like we are currently seeing with the pandemic; it can be tough to look at Bitcoin and claim that it is a safe haven since it’s price fell (as did gold’s) as investors with “weak hands” sold off what they perceived to be risky assets.
“What I believe we will see over the medium to longer term is Bitcoin being seen as a safe haven and hedge against the types of irresponsible monetary and fiscal policy we are seeing from central banks and governments in response to the pandemic.”
We have to mention that Bitcoin has wiped out many traders over the last few weeks. The intense selloffs coupled with extreme volatility are shaking weak hands out. We know this because the average lifespan of coins that moved in March is around one month. This suggests that those who bought between January and February this year have capitulated. At the time of writing, Bitcoin was falling by 1.05% to $6,860.21.