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Does the Bitcoin Christmas Rally indicate an inverse tethering with stocks?


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Does the Bitcoin Christmas Rally indicate an inverse tethering with stocks?

For the second time in the past few months, stock values have plummeted, while values for Bitcoin and its altcoin brethren have surged. There has been an ongoing debate among analysts and investors as to whether movements in the stock market can be correlated with those for cryptocurrencies. The possibility of such a “tethering” may be unfolding before our eyes. Bitcoin has recovered 14.5% of its value in December, while the S&P 500 index has dipped 19.7% from its October high.

The correlation debate, however, is not something new. There have been several times in the recent past when event risk sent investors searching for any “safe haven” in the storm. Gold, other precious metals, the Japanese Yen, and, yes, U.S. Treasury Bills have been the favored havens over time, but there has been enough of a bump in Bitcoin values to suggest that it might be destined for this esteemed grouping.

Bitcoin has already gained the reputation as the “safe haven” among other cryptos. On several occasions, the capital flows from other altcoins can easily be traced to buying demand for BTC at times that troubling events in the crypto ecosphere dictated such a move. Believers in the BTC safe haven hypothesis have often pointed to the crisis in Cyprus back in 2013. While the crisis raged, Bitcoin appreciated by 80%. Similar results were recorded years later when Greece threatened to exit the EU.

Equity investors were not exactly flocking to Bitcoin at that time. According to Mati Greenspan, senior market analyst for social trading platform eToro:

Traditional assets like gold have a lot more liquidity bridges and gateways that facilitate flows to and from stocks, bonds, and ETFs. Bitcoin doesn’t have that framework in place just yet.

An investor does want easy access and egress, but liquidity may be a larger issue. You want your safe haven to have a stable asset value. Noted cryptocurrency fund manager Jacob Eliosoff explained that, “Bitcoin obviously remains tremendously volatile: both in random day-to-day (or hour-to-hour) swings, and in its own internal dramas and crises. So it’s certainly not a reliable safe haven.

Of course, that was then, and now is now. Things have definitely changed in the crypto market over the past few years. The Chicago Board of Exchange now permits futures trading in BTC, and traditional investors have leaped upon cryptos as a high-risk asset to balance their portfolios. Institutional traders may still be sitting on the sidelines in large numbers, but many have found a way through the OTC “backdoor” offered by traditional stock brokerage firms.

These changes, nevertheless, are positives that will not disappear. Charles Thorngren, CEO of Noble Alternative Investments, suggests that:

The base of Bitcoin has changed, in fact it has evolved, to a wider base of investors. People who have only invested in Equities are now looking for options as the rumblings in the Stock and Bond market increase. This new investor helps to establish a stronger Bitcoin market and adds legitimacy to the Cryptocurrencies as a whole.

Is there a correlation or not? The jury may still out on this one. Cryptos remain in their infancy state, but greater access continues to evolve. Volatility and liquidity concerns must also be addressed, but there will always be a portion of the investment community that will try new things. Being a “safe haven”, however, can be a double-edged sword. When conditions change, investors tend to withdraw their funds, thereby causing a small rush for the exits. As for today, stocks are modestly up, and Bitcoin is down?

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Does the Bitcoin Christmas Rally indicate an inverse tethering with stocks?

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