A recent report in the Wall Street Journal details how bitcoin is becoming an increasingly mainstream asset and is starting to develop strong correlations with traditional assets, including Gold.
The the increase in institutional funding, increasing venture capitalist (VC) investments, and growing mainstream adoption as possible factors behind its increasing correlation with traditional markets. Despite this, the WSJ report also notes that bitcoin is still far more volatile and riskier than mainstream investment vehicles, like the stock market or precious metals markets.
bitcoin Developing Strong Correlation with Gold
Recently, talk within the cryptocurrency community regarding status as a safe haven investment – one that traditional investors turn to amidst instability in the traditional markets – has increased significantly as the US stock market faces growing volatility.
Historically, Gold and other precious metals have been the most popular safe haven investments, used by investors and institutions alike to hedge their positions within the equities markets. Many cryptocurrency investors hope, or expect, that will ultimately become a “Gold 2.0” that acts as a digital safe haven investment.
Although has never lived through a global financial crisis, statistics regarding its recent correlation with Gold show that it may be moving towards becoming a form of digital gold.
The WSJ report notes that on a scale of -1 to +1, ranging from completely inverted to perfectly correlated, bitcoin is airing towards being perfectly correlated with Gold, trading at a 0.84 correlation to gold over the past five days. The data used is from Excalibur Pro Inc., a research firm.
Furthermore, bitcoin also has traded at a 0.77 correlation with Chicago Board of Options Exchange’s VIX index, which measures market volatility and is widely seen as a “fear gauge.”
Institutional Money, Venture Capital Driving bitcoin to be Mainstream
The report also notes that bitcoin’s increasingly mainstream nature is being driven by an influx of institutional funding and more venture capital investments entering the industry.
Recently, news has broken regarding multiple financial institutions entering the cryptocurrency markets, like Fidelity Investment’s institutional-aimed cryptocurrency exchange platform, and the OTC exchange-traded bitcoin ETF trust sold by Grayscale investments.
The report explains that the Grayscale ETF has grown from having a mere $3.5 million under management in 2013, to highs of approximately $3.5 billion by the end of 2017 at the height of the cryptocurrency bull market. This fund has lost a significant amount of funding throughout the 2018 bear market, and currently has about $900 million in funds under management.
Venture capital investments in the industry have also helped propel it as a mainstream investment, with a significant amount of VC wealth flowing into blockchain and cryptocurrency companies. The WSJ says that in 2013, VC investments in the blockchain and crypto sector totaled at a mere $96 million, swelling to over $500 million by the end of 2016, and then skyrocketing to over $2 billion by the end of 2017.
As more companies release their products aimed at onboarding institutions into the cryptocurrency markets throughout 2019, bitcoin’s status as both a mainstream investment vehicle and a safe haven investment will become increasingly clear.
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