Many investors agree Bitcoin (BTC) every bit a hedge confronting the global financial arrangement. Nonetheless, every bit the numbers show, Bitcoin has not been spared from the recent COVID-19 financial crunch.

This article will clarify the movement of global fiscal markets and its correlation with Bitcoin during the COVID-nineteen crisis. Nosotros'll consider the following sources as price measures for the following.

  • Bitcoin's toll from CoinMarketCap.
  • Bond prices from Vanguard Full Bond Market Index.
  • Stock prices from the Southward&P 500.
  • Gold from the toll of gilt futures traded on COMEX.
  • Real Estate from the Dow Jones U.Southward. Existent Estate Index.
  • Oil as the price of crude oil futures from Oilprice.

The recent crash has really challenged Bitcoin's claim as "digital gold" and puts its exclamation equally a financial "safe oasis" to the test.

Related: Is Bitcoin a Store of Value? Experts on BTC every bit Digital Gold

A 21-solar day rolling correlation graph shows that Bitcoin has recently become increasingly correlated with other global fiscal assets.

This statistic should be worrisome for cryptocurrency investors trying to discover a respite in the midst of all the financial chaos.

Has gold fared any better?

Before nosotros requite "digital gold" such a hard fourth dimension, we should note that physical gold hasn't sheltered investors from this fiscal storm either.

Correlations between gold and other financial avails have also soared during this fourth dimension, signaling that the globe'southward financial markets are more interconnected than always before.

The importance of low, or negative, correlation

Harry Markowitz, the begetter of the mod portfolio theory, postulated that the most of import aspect of run a risk to consider is an asset's contribution to the overall risk of the portfolio, rather than the risk of the asset in isolation.

Therefore, a portfolio is not riskier if it contains Bitcoin, which is a more than volatile asset, and it is uncorrelated or negatively correlated with the other holdings in the portfolio.

Uncorrelated avails are the envy of portfolio managers because they can reduce volatility and improve gamble-adapted returns. Many portfolio managers keep Bitcoin every bit an culling asset in their portfolio for this reason alone.

If Bitcoin does not remain uncorrelated with the rest of the financial market, so it may be viewed as a significantly less desirable, risky asset by asset managers and the institutional marketplace. A subtract in institutional interest could mean large sell-offs and fewer fiat inflows into the market.

So far, this is not the case

Despite a recent uptick in its correlation, a portfolio comprising 80% stocks and xx% Bitcoin would have outperformed a portfolio of 100% stocks from a take a chance-adapted return perspective inside the final iii months and also inside the final yr.

However, if we were to but await at the last month, Bitcoin would have been improve off avoided.

It is true that Bitcoin has remained a relatively detached and uncorrelated asset in times of economical prosperity. But that is not enough. For it to be considered a true financial safe oasis, it must be robust against shocks reverberating through other fiscal markets. Especially in times of turmoil, the nugget'southward performance should be placed under heavy scrutiny.

Hopeful for a rally

Nevertheless, Bitcoin'southward recent price rally has shown signs of hope. This may provide hope to cryptocurrency holders — peculiarly if other assets continue to tank.

Do cryptocurrency indices provide better diversification?

The HODL30 index, a portfolio comprising the top thirty cryptocurrencies by market cap, was less correlated to the overall fiscal market than Bitcoin. The correlation between the index and American stocks was significantly lower than the correlation between Bitcoin and U.S. stocks.

If cryptocurrency investors want to shield themselves from global market fluctuations, indices may go increasingly relevant.

Time will tell whether Bitcoin or any cryptocurrency will live up investors' lofty expectations as a fiscal rubber haven. In a tight-knit, interconnected financial system, such a affair may prove impossible.

Perhaps the culling of fickle cryptocurrency investors during a time of crisis will exit only the strong and sturdy, dampening time to come volatility. Or, this price crash will set a precedent for investors to scramble for cash whenever the adjacent financial crisis brews because Bitcoin can no longer be trusted to shelter them.

The views, thoughts and opinions expressed here are the author's alone and exercise not necessarily reverberate or represent the views and opinions of Cointelegraph.

Anthony Xie is the founder of HodlBot, a trading tool that enables cryptocurrency investors to automate their trading strategies.