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Fidelity says “there is almost no relationship between the returns of Bitcoin and other assets”

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In recent years, a battle of the minds has surfaced on whether or not Bitcoin’s price is correlated with other financial assets, such as stocks. A recent report from Fidelity Digital Assets brings clarity to the argument. 

Fidelity’s lengthy report, titled Bitcoin Investment Thesis: Bitcoin’s Role As An Alternative Investment, shows not only a lack of correlation between Bitcoin’s price and mainstream financial assets, but higher returns for BTC investors over a long-term time horizon. 

The report said:

“Bitcoin’s correlation to other assets from January 2015 to September 2020 (displayed in the table below) is an average of 0.11, indicating there is almost no relationship between the returns of bitcoin and other assets.”

A 0.11 correlation exists on a scale between -1 and 1, with a score of 1 meaning flawless correlation, and -1 yielding opposite price action, the report clarified. If Bitcoin had a -1 score, for example, then the asset would rise in price whenever stocks fall. A 0 score would mean no other asset movements would affect Bitcoin’s price. 

Related News: Retail investors will ‘undoubtedly’ move to Bitcoin, says Fidelity

In recent years, Bitcoin has seemingly traveled a price path in line with mainstream markets at times. BTC dumped alongside stocks in March 2020 during initial COVID news. The digital asset, however, recovered much faster, with higher relative gains. More recently, Bitcoin suffered a slight drop in line with stocks on the news of delayed stimulus funding.

Related News: Fidelity makes it clear: Bitcoin volatility is worth the risk for institutions

But despite these short-term effects, Fidelity reported that “Bitcoin has distinct underlying fundamentals that are not affected by the health and economic situation created by COVID-19.”

In the report, Fidelity noted that the uncorrelated nature of Bitcoin could be partially due to a new era of retail interest in investing, driven by social media interest. 

The report further discussed the fact that Bitcoin has a number of narratives that are of interest to different investing constituencies, arguing that despite the argument over whether Bitcoin is a store of value or a means of exchange, “One of the beautiful things about Bitcoin is that its success is not predicated on serving a singular purpose.”

The digital asset has soared in price over the past decade, surpassing parity with the U.S. dollar, gold and other benchmarks, as previously described by crypto analyst and stock-to-flow model creator PlanB. On that journey, some people’s perception of Bitcoin has changed from a transactional currency to a store of value. 

Bitcoin’s age also plays a part in its lack of correlation. “Bitcoin is a young asset that, until recently, was untethered to traditional markets,” the report said. “As it is integrated in institutional portfolios, it could become increasingly correlated with other assets.”

Mainstream Bitcoin trading products have trickled into the crypto space since the Chicago Mercantile Exchange’s Bitcoin futures trading product launch in 2017. Since then, Bitcoin options have also surfaced on the mainstream market. As noted by the Fidelity report, correlations may begin surfacing, possibly now partially visible in the “Bitcoin CME gap” theory, around which many crypto traders place importance.

In general, however, Fidelity noted a lack of mainstream correlation for crypto asset prices, citing a study from Yale University which looked at several top cryptocurrencies, including BTC and Ethereum (ETH). 

Fidelity reported:

“Based on their analysis, the return behavior of all digital assets, including bitcoin, could not be explained by the risk factors that account for the returns in stocks, currencies, or precious metal commodities or by macroeconomic factors such as non-durable consumption growth, durable consumption growth, industrial production growth, and personal income growth.”

Morgan Creek Digital co-founder and crypto industry expert Anthony Pompliano has spoken many times on Bitcoin as a non-correlated asset. Amid an uncertain global situation, such an asset might serve as a hedge, at least according to MicroStrategy, a large financial player that recently put $400 million into BTC. 

UPDATE Oct. 13, 21:33 UTC: This article has been updated with added information.



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Bitcoin Must Consolidate Above This Key Level, Or Risk Plunging to $11,900

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  • It has been a wild past few days for Bitcoin and the aggregated cryptocurrency market
  • Bitcoin has been able to post consistent gains throughout as of late, with buyers and sellers largely reaching an impasse following its slight rejection at $13,200
  • This has created a slight consolidation phase around $13,000 that it has been caught within throughout the past two days
  • If this phase persists in the near-term, BTC must continue holding above $12,800
  • One analyst noted that a break below this level could open the gates for a move down to lows of $11,900

Bitcoin and the aggregated cryptocurrency market have seen a roller-coaster week, with Bitcoin’s previous weakness being fully erased by bulls who sent it surging to fresh yearly highs of $13,200.

This move’s intensity has sparked a sense of euphoria and hope amongst traders and investors, with may expecting further upside in the days and weeks ahead.

For this to come to fruition, bulls must continue defending against a break below $12,800.

One analyst noted that a break below this level could open the gates for BTC to see a sharp decline down towards $11,900.

Bitcoin Struggles to Gain Momentum as Selling Pressure Mounts 

On a short-term scale, Bitcoin’s momentum is faltering slightly due to some heavy selling pressure within the lower-$13,000 region.

Until it can break above this region, there’s a possibility that a retrace could be imminent in the near-term.

At the time of writing, Bitcoin is trading flat at its current price of $12,985. This is around the price at which it has been trading for the past couple of days.

Each selloff has been aggressively absorbed by bulls, which is a positive sign.

Analyst: Here’s the Crucial Defense BTC Needs to Defend

While sharing his thoughts on Bitcoin’s present technical outlook, a popular crypto-focused analyst and trader at the Amsterdam Stock Exchange noted that $12,800 is the key support level to watch in the near-term.

He contends that a defense of this level could lead BTC towards $13,500, whereas a rejection could cause it to drop towards $11,900.

“Bitcoin: As long as $12,750-12,800 holds, I think $13,500 is next. But if it doesn’t hold as a pivot, I assume the price drops further down toward $12,200 and potentially $11,900.”

Image Courtesy of Crypto Michael. Source: BTCUSD on TradingView.

How the entire market trends in the months ahead will depend on Bitcoin. This makes it vital for BTC and altcoins investors alike that the benchmark crypto maintains its newfound momentum.

Featured image from Unsplash.
Charts from TradingView.





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Top traders say Bitcoin log chart points to a 2017-style BTC bull run

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Peter Brandt, a well-regarded veteran trader, recently emphasized the high demand from institutions as a key catalyst for Bitcoin’s strong performance.

BTC/USD 1-month chart. Source: TradingView

The strong high time frame technical structure of BTC, especially the weekly chart, and the strengthening fundamentals are buoying the market sentiment. In a tweet, Brandt posted the above chart and said:

“Bitcoin—IF the current gains hold through end of Oct—is poised for the second-highest monthly close ever. $BTC Institutions are increasingly involved in Bitcoin ownership. Institutions mark the value of their assets monthly.”

In addition to the rise in trading volume and growing institutional appetite, investors are referring to the logarithmic chart to forecast a broader rally.

Raoul Pal focuses on the Bitcoin log chart

The log price chart is the most widely used scale by most technical analysts. A logarithmic chart simply means a chart that represents common percent changes with equal spacing in a scale.

Raoul Pal, the founder and CEO of Real Vision Group, says Bitcoin’s monthly log chart is highly optimistic. He wrote:

“Its a bitcoin kind of day. The monthly log chart with regression lines is really something to behold. One of the nicest, post powerful chart patterns I’ve ever seen.”

The technical reason behind the optimism towards the monthly log chart is mainly its clean breakout. Throughout the past four years, $13,000 has acted as a heavy resistance level.

The historical log chart of Bitcoin. Source: Raoul Pal

As such, on high time frame charts, like the weekly and the monthly chart, BTC always closed below $11,000, except for 2020.

Bitcoin’s clean technical breakout on the monthly timeframe is leading traders and investors like Brandt and Pal to make strong bullish calls on BTC’s price action. As Pal said, “if history rhymes, 2021 is going to be a BIG year.”

BTC/USD 1-month chart. Source: TradingView.com

Q4 2020 may end on a positive note

Apart from the numerous bullish technical and fundamental catalysts, the timing of the current rally is also in favor of a major Bitcoin bull cycle.

Bitcoin quarterly returns in percentage. Source: Skew

According to data from Skew, Bitcoin had not had three positive consecutive quarters since 2017. During that year, BTC reached its all-time high at $20,000 following its second block reward halving in 2016.

Bitcoin could possibly be on track to record a massively positive gain in the fourth quarter if it stays above $12,000. If so, that could lead to the same bull cycle pattern as 2017. Next year would also present the same post-halving cycle BTC saw in 2017, which further strengthens the narrative of a newfound bull cycle.