correlation between
Chapter 3 : Crypto investing Chart 6 : Institutional adoption sparks positive correlation
Source : Luciano Somoza and Atioine Didisheim , Swiss Finance Institute
At the time , growth forecasts were slashed from 6.1 % in 2021 to 3.6 % in 2022 . As of July , this has been reduced by 0.4 %.
This debt spike has led the UK ( 10.1 %) and the US ( 9.1 %) to experience the highest levels of inflation in 40 years and the eurozone ( 9.1 %), recording its highest levels to date . Subsequently , central banks have turned hawkish , ending a decade of record-low interest rates .
“ Bitcoin ' s correlation to equities has spiked as investors seek a safe haven ,” Carlos Gonzalez , research analyst at 21Shares , told ETF Stream . “ Bitcoin is a nonsovereign form of money that exhibits unique characteristics .”
For institutional investors , the time could be right to give the ' safe haven ' idea a shot . Bitcoin is trading 70 % below its all-time high and Federal Reserve chairman Jerome Powell said the central banks would raise rates “ for some time ” to curb rampant inflation .
Data from CF Benchmarks captures this institutional ' flight to safety ' by detailing the surge in CME bitcoin open interest futures . In March 2020 , futures were hovering around $ 4bn but by August , the number has risen to over $ 10bn .
This is backed by data from Glassnode which suggests entities engaging in transactions greater than $ 10m constituted 7 % of market volume in March 2020 and a staggering 83.2 % of the market , as at August .
So where do we go from here ?
Correlations show the relationship between two different variables and if they move in tandem with one another they are said to be correlated . The fact bitcoin has become widely accepted and accessible means institutional investors are comfortable trading it alongside traditional assets . Effectively , the more investors in bitcoin , the more it matures and so becomes less speculative , less diversified and more correlated with the other assets .
Lured by the promises of an uncorrelated asset , if bitcoin continues to grow , institutional investors may have to contend with being disappointed despite the maturity the asset class has shown in recent years .
Stephan Roth is special reports writer at ETF Stream
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