WSJ: Bitcoin Trading at Strong Correlation With Traditional Assets

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Within the past days, the ratio between Bitcoin and conventional assets markets has been high, writes the Wall Street Journal.

What Are The Correlations Like?

In the frames of the past five days, the «big daddy» has traded at a 0.84 correlation to gold. At the same time, it traded at a 0.77 correlation to the Chicago Board of Options Exchange’s Volatility Index (VIX). The latter is a benchmark index for the American equity market volatility. It is important to note that here -1 shows total inversion and +1 ideal correlation.

This is data from a research firm Excalibur Pro Inc., which WSJ referred to in an article as of December 28.

Why Have These Patterns Appeared?

The WSJ article provides several reasons for that. Firstly, it is the inflow of institutional funds into the crypto-ecosystem. For instance, in 2013 (first year) the Bitcoin Investment Trust saw $51 man in assets under management (AUM). Before the coming of 2018, when bitcoin’s price went up to $19,000, AUM had spiked to approximately $3.5 bln. Amid a recent drop-period, the trust allegedly holds around $900 man AUM.

Secondly, the patterns appeared because of venture capital pilings. According to the media outlet’s report, five years ago VC pilings in BTC and DLT were at about $96 mln. By the end of 2017, this indicator increased to more than $2bln.

It is also emphasized in the article that conventional capital flows into crypto-industry thanks to:

  • the emergence of bitcoin futures trading (and its brethren);
  • establishment of trading services as well as infrastructure with hight regulatory harmony;
  • efforts to achieve wide acceptance of bitcoin-based ETFs (and its ilks).

WSJ also notes that the crypto-ecosystem keeps facing ambitious changes. To take a handful of examples:

  • the setup of the Bakkt Bitcoin futures exchange from Intercontinental Exchange;
  • the proceeding inflow of strapping investors such as Yale, Harvard and Stanford Universities;
  • the establishment of investment titan Fidelity’s digital assets business.
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