June 24, 2020 / In the world

Bitcoin, S&P, Gold And Crrelation: Is It Worth To Conclude?

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The major cryptocurrency is often credited with the status of a protective asset. In a period of high turbulence at the stock exchanges, it will certainly be compared with gold, and after that, further quotes will be predicted. For this, as a rule, calculate the correlation coefficient. But an assessment of the four-year retrospective does not provide the desired answer.

Bitcoin, S&P, Gold and Coronavirus

In March of this year, under the pressure of the global pandemic, all three assets fell at about the same time. A large number of information channels hastened to draw various conclusions from this based on short-term correlation analysis.

Bad Behavior: What Does The Correlation Of Bitcoin With Gold and S&P Tell Us?

But when we are dealing with time series, it is easy to encounter a false correlation. The way out can be found in the conversion of data, for example, from prices to profitability. Also, the commonly used correlation reveals only a linear relationship, and its absence does not guarantee the absence of a relationship as such.

Additional calculations in our example did not reveal either causality or a sustainable long-term relationship between Bitcoin and gold.

In the period from 2016 to 2019, Bitcoin did not behave like gold. There is no reason to claim that Bitcoin has the same protective properties in the financial market as gold.

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