Going through a sea of change in the cryptocurrency market, the investment game is undergoing a seismic shift. bitcoin spot ETFs already exist, signaling bitcoin's leap into mainstream finance and bringing it closer to mainstream investment fabrics. We will look at the tip of the iceberg trying to imagine its true depth, as well as the current correlation between bitcoin, stocks and gold. We will try to find out if the traditional market is really pushing bitcoin out of its decentralized place, or if there is still a chance of hope that it can maintain its unique path.
According to Kaiko data, bitcoin's risk-adjusted returns were higher than those of traditional assets. Nvidia led with the highest returns on a risk-adjusted basis, while bitcoin was impressively behind, outperforming leading traditional assets like the S&P 500, Gold, with its value rising over 160% on a risk-adjusted basis.
Meanwhile, according to the IMF's crypto Cycle and US Monetary Policy study, 80% of the variation in cryptocurrency prices and their growing correlation with stock markets crypto-Cycle-and-US-Monetary-Policy-534834″>agreed with the entry of institutional investors into the cryptocurrency markets since 2020. Notably, trading volumes of institutions on cryptocurrency exchanges grew by more than 1,700% (from approximately $25 billion to over $450 billion ) during the second quarter of 2020 and the second quarter of 2021. According to the study, US monetary policy affects the cryptocurrency cycle, as do global stock cycles, but surprisingly, only monetary policy matters of the US Federal Reserve, not that of other major central banks, probably because the cryptocurrency markets are heavily dependent on the USD.
Additionally, the 2023 Digital Asset Outlook Survey for Institutional Investors indicates that 64% of investors will increase their bets in the cryptosphere within three years, allocating up to 5% of assets under management to cryptocurrencies. Several institutions made investments for the first time over the past year, while others increased their existing investments. While the study highlights an increase in commitment to cryptocurrencies by 41% of asset managers, only 27% of asset owners appear to be increasing their bets.
Although bitcoin was born from the idea of sharing power equally, recent studies indicate that it is slowly becoming dominated by a select few big players.
Changing correlation dynamics
Curiously, bitcoin-price-prediction/”>bitcoin It moves in sync with the S&P 500 and the Nasdaq, with an impressive correlation. Meanwhile, the correlation between bitcoin and gold has declined sharply recently, in contrast to claims that investors view cryptocurrencies as a safe haven or hedge against inflation, a role gold traditionally plays.
Notably, bitcoin's correlation with gold was positive at 0.83 on November 7, 2023, but decreased to -0.1 on January 10, 2024, before rebounding to a slightly higher positive level of 0.14 on February 9, 2024. Meanwhile, bitcoin's ratio to the S&P 500 recorded a negative correlation of -0.76 on November 11, 2023 and then reached a positive correlation of 0.57 in January 2024. This Change from negative to positive correlation points to the changing perception of bitcoin among investors.
The Nasdaq Composite, known for its technology and growth stocks, also showed a varying correlation with bitcoin. The negative correlation, from -0.69 on October 30, 2023, became positive from 0.44 in January. It appears traders are linking the pace of bitcoin to the pulse of the tech sector, hinting at a new kinship in investment strategies.
When the correlation between bitcoin and traditional stock markets like the S&P 500 and Nasdaq increases, while its correlation with gold decreases, it suggests that bitcoin is behaving more like a risk asset than a safe haven. When investors are feeling adventurous, they often turn to stocks and digital currencies in search of bigger profit opportunities.
If institutional and retail investors increasingly participate in the stock and cryptocurrency markets, their simultaneous buying and selling decisions could cause the price movements of these assets to align.
Spot bitcoin ETFs getting the green light appear to be increasing their appeal to big investors, with a large portion already planning to boost their bitcoin play. bitcoin's move toward ETFs could make them act more like stocks, since those funds are big players in the stock market world.
Amid these developments, the essence of bitcoin and other cryptocurrencies, free from the confines of traditional financial systems, could be undermined. Furthermore, these changes could expose bitcoin to the same systemic risks it was designed to escape.
Final thoughts
As we look at how bitcoin spot ETFs could change bitcoin's role in the market and its current link to stocks, we must be careful to balance our enthusiasm for the entry of more big players and potential growth with maintaining loyalty to the core of bitcoin. principle of not being centrally controlled. bitcoin's move towards a more centralized investment scene could shake up the market, offering bright opportunities but also difficult challenges ahead.
This is a guest post by María Carola. The opinions expressed are entirely their own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
