For the past few weeks, Bitcoin (BTC) has been in a consolidation range between $9,200 and 9,600 and it is believed that the latter has to be broken before any significant price gains can be achieved.
The benchmark cryptocurrency appears to be slowly disentangling its price action from that of stocks, however, some short-term correlation to the traditional equities market remains. This connection was observed on the 15th of June when BTC dropped below the $9,000 mark at the same time when the futures stock market was wrecked with heavy losses.
Some market participants worry that Bitcoin’s correlation to the equities market does not bode well for its appeal as being a good store of value or digital gold. However, many others have pointed out that it may be a positive indication considering it depicts that the digital asset is gaining ground by an increase in its representation across several traditional markets.
The CEO of Blockware solutions, Matt D’Souza, recently expressed this point in a Twitter thread where he cited multiple Bitcoin correlations to Gold, FX, and equities markets.
1) Breaking Down #Bitcoin’s Price Action – Today’s near perfect correlation with US Equities.
What is fascinating about BTC are the multiple short-term correlations that emerge. We have witnessed strong, short term correlations to Gold, to USD/CNY, and most recently US Equities. pic.twitter.com/40jkzAMrUb
— Matt D’Souza, CPA (@mjdsouza2) June 15, 2020
D’Souza opines that Bitcoin’s short-term correlation to major markets illustrates the cryptocurrency’s investment utility in hedging against market volatility.
Another D’Souza’s message also explains the different use cases of Bitcoin that make it a “feature for every portfolio.”
3) The range of use cases maintain Bitcoin as an overall uncorrelated asset beyond short term intervals – a FEATURE for every portfolio.
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— Matt D’Souza, CPA (@mjdsouza2) June 15, 2020
Irrespective of whether the short-term correlation is viewed as an advantage or disadvantage, worries over volatility in the stock markets remain as the Covid-19 pandemic continues to cause upheaval across global economies.
Considering that Bitcoin is susceptible to long squeezes which could sometimes induce extreme liquidity like the one seen in Black Thursday (March 12), investors worry that an accentuated decline in the stock markets could ignite another drastic sell-off in the cryptocurrency market.
On Aggregate, BTC Investors are Profitable
As the global economy continues to recover, the prospects for a stabilized equities market is becoming increasingly possible. Also, worth mentioning is that the majority of cryptocurrency investors are still profiting from their Bitcoin positions.
Based on a survey by Glassnode, 79% of BTC holders are profitable. This result was derived from a price metric that monitors the average buy price of BTC in a wallet at the time they were acquired to determine if the holder is in profit or not.
Some concerns have been raised as to whether these investors are likely to dump their holdings to recover losses in traditional markets. D’Souza explained that this was possible but that they are more inclined to stay with assets that make them money, stating that this was basic ‘human psychology.’
Another metric that attempts to reveal a general break-even price for Bitcoin is the aggregate cost basis. This metric indicates that the aggregate break-even price of Bitcoin is at the $5,776 mark and that BTC holders, on average, are profiting by 61% from buying Bitcoin. Ryan Watkins, a research analyst at Messari, recently tweeted that this metric can provide significant insight into potential investor behavior.
Although these metrics are imperfect, they paint a very good picture of how Bitcoin holders feel about their investment and investor sentiment, both in the cryptocurrency market and traditional markets, which is a very powerful force. Each metric provides deep insight into Bitcoin and illustrates that as more and more investors from other sectors troop into Bitcoin, the cryptocurrency will keep maturing as an asset class.
Written by Azeez Mustapha, Forex strategist and funds manager
DISCLAIMER. This piece reflects the author’s opinion and does not necessarily coincide with that of forklog.media’s editorial board. The text presented herein is not and shall not be construed as investment advice or an endorsement to make an investment. The author or the editorial board of forklog.media cannot be held responsible or liable for any decisions and/or their consequences arising from this text.
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