Bitcoin has been constantly compared with the yellow metal, with many pushing forward the narrative that Bitcoin is digital gold. This narrative was fueled even more after the world’s largest cryptocurrency reflected a correlation with Gold after the Coronvirus pandemic struck fear in the hearts of world markets.
The stock market crash that took place on 12 March was shared by the BTC market, with the latter falling to a level unseen since February 2019. Soon after the fall, Bitcoin bounced back and many traders drew parallels between the similarity of Bitcoin’s performance to that of Gold’s during the 2008 financial crisis.
However, according to Elias Simos, a senior research analyst at Decentral Park, the BTC correlation with the global market is being used “fairly indiscriminately,” with the analyst questioning the narrative being pushed onto the world’s largest cryptocurrency.
The researcher drew a timeline of the impact of Coronavirus on global finance, stating that on 17 February, when China announced 20k new cases, fear crept in the market, with the risk-asset correlation going to 1. He added,
“17-Feb is the point where we entered a post-risk-parity domain space. Among other things, this means that cross-asset strategies that worked before 17-Feb don’t any more, and likely won’t for the near future.”
Post the development on 17 February, the correlation between the risk-asset class indices was high and the spreads between them provided opportunities for arbitrage. The risk-asset class included SPX and BTC and without calculating the mean reversion, one could not call for decoupling, noted Simos. The performance of Bitcoin can be attributed to a more attractive relative value, one that can be noted with the largest crypto being oversold when compared to SPX.
However, that did not mean that the asset could be called digital gold, the analyst argued. According to Simos, in order to observe the decoupling of Bitcoin and its evolution into the digital gold narrative, BTC’s relative returns for the period will have to trump SPX’s. An inverse correlation will have to be visible, wherein BTC remains flat or up while the SPX is flat or down.
This could put Bitcoin in the digital gold chair, something that would also mean that crypto-assets will be considered on their own in the galaxy of asset classes, opined the researcher. However, Simos did warn that gravity might play its role if another risk-off move was made in the coming weeks.
At press time, Bitcoin was priced at $7318, with a 24-hour trading volume of $15.7 billion.
Source: Coinstats
