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Joining the ranks: Bitcoin’s correlation with gold and stocks is growing

BTC used to be an uncorrelated asset, but that’s no longer the case. What can gold and stocks suggest about the crypto markets?
Bitcoin (BTC) is an uncorrelated asset, or so the narrative used to go. For much of Bitcoin’s lifetime,…

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BTC used to be an uncorrelated asset, but that’s no longer the case. What can gold and stocks suggest about the crypto markets?

Bitcoin (BTC) is an uncorrelated asset, or so the narrative used to go. For much of Bitcoin’s lifetime, it existed as something of value to a very small group of people. Now, awareness and demand are accelerating rapidly. So, what does this mean for the status of BTC as a supposedly uncorrelated asset? 

That Bitcoin was an uncorrelated asset isn’t just conjecture — the numbers back it up. According to data compiled by VanEck in early 2021, there was almost no discernible pattern between the movements of Bitcoin and other markets, including S&P 500, bonds, gold, real estate and others, for the period 2013 to 2019.

But as the chart below shows, there has been an evident shift in correlation patterns across various asset classes since 2020, most notably, the stock markets and gold.

Furthermore, according to data compiled by Singaporean bank DBS, Bitcoin’s correlation to the stock markets continues to increase throughout 2021.

It’s worth noting that Bitcoin’s increasing correlation with both stocks and gold isn’t an anomaly. These markets are generally considered to have an inverse relationship thanks to gold’s status as a hedging instrument during periods of stock market volatility. However, no doubt in part thanks to the market turmoil caused by macroeconomic factors, both stocks and gold have been in generally bullish markets for most of 2020 and 2021.

This pattern explains how BTC can show a correlation to both assets. However, the narrative that Bitcoin could be most closely correlated to gold appears to be on increasingly shaky ground. 

To begin with, this theory was only ever based on the notion that investors may treat BTC as a store of value in the event of a wider market downturn, affording it the same “safe haven” status as gold. However, for much of Bitcoin’s lifetime, it had existed during times of economic prosperity, at least in the more advanced economies, so the theory had never been tested.

Not digital gold?

TD Ameritrade analyst Oliver Renick has argued that BTC is far more correlated to macroeconomic events than gold. The Goldman Sachs head of commodities research recently went on record to state that Bitcoin is more like “digital copper” than digital gold. His position is that Bitcoin behaves more like copper as a “risk-on” asset, whereas gold serves as a “risk-off” hedge.

Brandon Dallmann, chief marketing officer of exchange ecosystem operator Unizen, thinks Bitcoin is not a gold-like asset, telling Cointelegraph: “Bitcoin’s current volatility indeed prevents it from being a stable store of value. Also, gold’s price tends to rise when other assets depreciate, and Bitcoin doesn’t show such a stable up-down trend.”

However, it may not necessarily be a positive development for volatility-seekers if Bitcoin does take on gold-like properties since its trading potential will surely decrease.

Recently, market demand appeared to indicate a more negative correlation between Bitcoin and gold. The May sell-off in the crypto markets could have prompted fleeing investors to go on a yellow metal buying spree.

Bitcoin’s correlation with the stock markets appears to be taking a different turn. Events over the last 18 months or so have given further credence to the argument that Bitcoin is correlated to the stock markets and that the bond could be becoming stronger. In March 2020, when the stock markets started to fall amid widespread uncertainty regarding COVID-19, a cryptocurrency Black Thursday rapidly followed.

More recently, Bitcoin’s volatile price action could be associated with investor uncertainty regarding tech stocks. Barry Silbert has also tweeted his belief that the crypto markets are correlated to stocks.

What’s tying BTC to stock prices?

There are several factors explaining why Bitcoin appears to be increasingly tied to the stock markets. Firstly, the meme stocks movement that started with GameStop in February, and more recently reemerged around AMC shares, has caused waves in the world of stock trading. The emergence of a new generation of digital-savvy investors who bridge the gap between crypto and stocks could explain why there’s an increasing correlation between the two assets.

However, another critical factor must be the inflow of institutional funds to crypto. While the “uncorrelated” argument held water while crypto was dominated by retail investors, it’s increasingly no longer the case. Logically, if it gets to a point where both markets consist of the same participants, the correlation becomes inevitable.

Related: GameStop inadvertently paves the way for decentralized finance

This pattern of correlation also makes sense when drilling down into the correlation data to the level of indexes or even individual company stocks. While Bitcoin’s correlation with the S&P 500 and Nasdaq indexes is relatively low at 0.2, Bitcoin-invested firms show a far higher correlation, with Tesla around 0.55, MicroStrategy above 0.7, and Grayscale’s Bitcoin Trust above 0.8.

Extrapolating what this could mean if the institutional trend continues, it seems plausible that Bitcoin’s correlation to the stock market will continue to increase as long as firms want to hold BTC on their balance sheets. However, Igneus Terrenus, head of communication at Bybit Exchange, believes that it will take a long time before that happens, telling Cointelegraph:

“Things may very well change in the long term when institutional adoption truly kicks into gear, and more of the 40,000-plus public traded companies start to put BTC on their balance sheet. But at the moment, most institutional investors are using Bitcoin as a diversifier in their portfolio. We are yet to see any major sign of convergence in price movements.”

A two-way relationship

Correlation isn’t causation, and Bitcoin’s relationship with the stock market isn’t one-way. While events in the stock markets could cause BTC market movements, could the opposite also be true? It seems likely, particularly as institutional interest in BTC continues. The flagship cryptocurrency would become more exposed to macroeconomic factors than it was during its cypherpunk days.

Still, Bitcoin has its own market forces at play, and these could ultimately influence the global stock markets if the value of corporate balance sheets fluctuates. For instance, Bitcoin’s halving events have a compelling link with its price cycles. Daniele Bernardi, CEO of fintech management company Diaman Partners, believes that BTC’s own price cycles will override the influence of institutional investors, telling Cointelegraph:

“The main actors involved in crypto’s market dynamic are traders, so the introduction of institutional investors might dampen volatility, but I suspect the strong cyclical patterns present right now in Bitcoin’s price formation will override any forces of correlation with other markets.”

It’s also worth remembering that externalities, such as electricity prices, availability and cost of mining equipment, and regulatory developments all impact Bitcoin’s price.

So, it seems unlikely that many firms would adopt the same enthusiastic attitude to BTC investing as MicroStrategy and would likely take a more prudent and diversified path should they invest in crypto. However, the idea of a power cut in Xinjiang, which could wipe trillions off the S&P 500, could be a little daunting.

What about altcoins?

Another intriguing consideration is what would happen to the rest of the cryptocurrency markets should Bitcoin become more closely tied to the stock markets. So far, the crypto markets generally follow Bitcoin’s lead, although there may be odd exceptions.

However, institutional interest in cryptocurrencies doesn’t necessarily extend very far down the crypto ranking tables. Therefore, would it be possible to see a future where price movements in altcoin markets are less correlated with Bitcoin, thanks to an investor base split between individuals and institutions?

Related: Bullish all the way? MicroStrategy doubles down on its Bitcoin bet

The shift in investor profile, even if it’s only just starting, is the most straightforward explanation for why BTC isn’t necessarily always performing in the same way as it has during previous halving cycles.

Of course, there could be other factors at play. Regardless of what the future holds, it now seems inarguable that BTC is inextricably linked to the global markets in a way that’s unprecedented during its lifetime.

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Government

Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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International

Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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Government

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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