When Sentiment Trumps Fundamentals
analysis by DataTrek Research suggests the correlation coefficient between bitcoin and stocks is at its highest when opinion, rather than fundamentals, is the primary driver of moves in the fiscal markets, the Journal says. During the stock market correction earlier this year, that correlation hit an all-time peak, per both sources. But Nicholas Colas, the co-founder of DataTrek, told the WSJ that the correlation is strongest when both bitcoin and stocks are falling. As a result, he noted, the correlation has weakened since the holocene malcolm stock market correction ended.
Loss of Risk Appetite
When risk-loving investors lose their appetite for the highest-returning, most volatile, most inquisitive assets, a more generalized downturn in asset values much follows, the Journal observes. today, cryptocurrencies may be playing a character that older asset classes played in previous bubbling markets, the Journal theorizes. When the Dotcom Bubble explode, for model, the most inquisitive internet startups with the thinnest histories of profits were among the earliest and the hardest to fall, the WSJ adds. As measured by the Investopedia Anxiety Index ( IAI ), our millions of readers worldwide remain very concerned about the securities markets .
holocene Price Moves
The S & P 500 Index ( SPX ) fell by 10.2 % during the correction between its record high close on January 26 and its holocene abject close on February 8. During this lapp period, the price of bitcoin declined by 25.7 %, and it tumbled by 64.3 % from its all-time high on December 16 to its recent moo on February 5, per CoinDesk. As of February 5, its low so far in 2018, bitcoin was down by 51.1 % YTD .
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For the year-to-date through 5:25 PM New York prison term on March 12, bitcoin was down by 35.3 %, after rocketing up by 1,289 % in 2017. The respective figures for the S & P 500 are gains of 4.1 % YTD and 19.4 % in 2017 .
‘That ‘s Absurd ‘
To be certain, using bitcoin as a leading indicator of stock prices is distillery a very controversial topic. Jason Ware, CIO of the Albion Financial Group, was scathing in his comments to the Journal : “ I think that ‘s absurd. ultimately, stock certificate returns are grounded in the economy, corporate earnings, pastime rates and inflation. ” He besides noted, per the Journal, that investors in bitcoin typically pay little or no attention to these fundamentals .
Correlation vs. Causation
Apropos Ware ‘s comments, the Journal points out that apparent correlations between the prices of bitcoin and stocks are not necessarily the leave of similar, let entirely the same, causative factors. For exercise, the most holocene selloff in store prices was spurred, in the public opinion of most analysts, by President Trump ‘s March 1 announcement of steep tariffs on imported steel and aluminum. At roughly the like clock time, the prospect of cryptocurrencies being banned in some countries or subjugate to regulation in others was growing. ( For more, see besides : bloodbath in Crypto Markets and Bitcoin Price on Fears of Government Crackdown. )
Investing in cryptocurrencies and other Initial Coin Offerings ( “ ICOs ” ) is highly bad and notional, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual ‘s position is singular, a qualified professional should always be consulted before making any fiscal decisions. Investopedia makes no representations or warranties as to the accuracy or seasonableness of the information contained herein. As of the date this article was written, the writer does not own any cryptocurrencies and does not own any cyrptocurrency-related party shares .