Bitcoin

Here Is When Bitcoin-Stock Market Decoupling Happening!

Written by: Delma Wilson

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Delma Wilson

Delma is a B2B Content Marketer, Consultant, Blogger in the field of Blockchain, and Cryptocurrency. In her spare time, she loves to blog, play badminton and watch out ted talks. She likes pets and shares her free time with NGO.

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May 30, 2022

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Decoupling is what it is referred. For bitcoiners and crypto natives, this is the latest creation of “hopium.” When that finally happens, it’ll be a win-win situation for Big Crypto and Big Fiat or stocks.

However, what it actually signifies is a little amusing. While bitcoin’s price moves sideways from equities and begins to rise when equities fall, this is known as decoupling (and vice versa).  Bitcoin will reach $1 million per coin, and stock prices will plummet to zero.

It’s ironic because not long ago, bitcoin was uncorrelated with practically all macro assets (gold, the S&P 500, bonds, and the US currency). This is something which is in our study report for 2021. (page 9). Here’s the chart from that report, along with the text that goes with it.

Correlation Coefficient

Basically, correlation refers to the amount that two measurements differ when compared to how much they typically vary separately. We’re concerned because we want to be able to characterize the relationship between bitcoin and other assets’ returns. The strength is connected with the correlation coefficient, sometimes known as the number or “r.” A correlation coefficient is more in the context of asset returns.

  1. +1.0 indicates that when Asset A increased by x%, Asset B increased by x%. 
  2. With no linear relationship between x and y, 0.0 means that while Asset A gained x%, Asset B gained y% (more below). 
  3. -1.0 indicates that when Asset A increased by x%, Asset B decreased by x%.

Uncorrelatedness recommends a 0.0 correlation coefficient, which is easy or difficult to imagine. Either all the numbers in the data sets are the same, or the data set appears to be absolute pandemonium. It’s not easy to create an random dataset with zero correlation (except in the dull orthogonal case). So the boring data set as well as an illustration of the chaotic situation is shown to emphasize the idea.

The uncorrelation is great, but it will be interesting if bitcoin were negatively in relation to stocks? If that happens will all of the equities go on a downward spiral to zero, as bitcoin continue to rise indefinitely? That’s how the decoupling works.

Traditional financiers will consider bitcoin as a risk-off asset as a result of the decoupling. Yes, they’re safer than stocks. Following the Decoupling, the volatile digital cash, which is currently in use for speculation, will become less dangerous than equities.

When Is Decoupling Happening?

On the other hand, decoupling is quite robust as it is “gradually, then suddenly.” The 90-day trailing correlations between bitcoin and the S&P 500 and the Nasdaq Composite Index in 2022 is below.

Although this isn’t the Decoupling, it does appear to be intriguing. These stock indices shifted from a weak positive connection to a positive sign associated band (>0.7) with bitcoin in 2022.

Bitcoin’s return profile resembles a macro asset we haven’t seen before, despite the fact that it isn’t as stunning as a large negative correlation would suggest. The correlation coefficient between the S&P 500 and bitcoin was nearly zero a year ago. In a year, the correlation has gone from near-zero to high. Furthermore, back in 2019, this association was extremely negative.

So, yeah, bitcoin is one-of-a-kind. As a result, I’ll say it again: Bitcoin is not like any other macro asset we’ve seen. 

Apart from bitcoin’s distinctiveness, this all reads like a lot of nothing. However, while checking on Wednesday, it’s seen something rather unusual (and statistically insignificant). This is what it was:

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Delma Wilson

Delma is a B2B Content Marketer, Consultant, Blogger in the field of Blockchain, and Cryptocurrency. In her spare time, she loves to blog, play badminton and watch out ted talks. She likes pets and shares her free time with NGO.

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