Has Bitcoin Improved As A Safety Escape Investment? – Bitcoin – United States dollar ($ BTC)
Bitcoin (CRYPTO: BTC) The bulls have had a great run over the past couple of years, and many argue that popular cryptocurrency has replaced gold as the best way to protect your portfolio from stock market declines.
Investors have plenty of reasons to seek a safe haven for their liquidity these days, as stocks are hitting all-time highs while interest rates remain historically low. Diversification is the most powerful tool for any investor to help reduce risk in a portfolio. To maximize diversification, investors should identify market sectors and assets that have minimal correlation with each other.
When you have a portfolio of strongly correlated assets, a massive sell-off in the market will likely drag your entire portfolio down in one fell swoop. However, if your assets have a low or even negative correlation, a market sell-off or downturn in a single sector of the market, such as the tech sector or the energy sector, might not exhaust your entire portfolio. .
See also: Is Bitcoin a Good Investment in 2021?
Traditional asset classes include things like cash, stocks, bonds, real estate, and commodities. Common commodities that have traditionally been viewed as escape-to-safety investments include gold, silver, and oil. The easiest way for investors to gain exposure to many of these asset classes is to purchase exchange traded funds, such as the following ETFs:
- SPDR S&P 500 ETF Trust (NYSE: SPY) for stocks.
- SPDR Gold Trust (NYSE: GLD) for gold.
- US Oil ETF (NYSE: USO) for petroleum.
- IShares 20+ Treasury Bond ETF (NYSE: TLT) for Treasuries.
- Barclays iPath Series B S&P 500 VIX ETN Short Term Futures (BATS: VXX) for market volatility.
Cryptocurrency is a relatively new asset class that some investors see as a superior way to diversify a portfolio. The most popular Bitcoin fund today is the Grayscale Bitcoin Trust (OTC: GBTC).
Correlations: Here is an overview of the Portfolio Visualizer Daily Return Correlation Matrix for the SPY, GBTC, GLD, USO, TLT and VXX funds.
Correlations are calculated based on daily returns since January 2018.
The good news is that the numbers suggest that the Bitcoin GBTC fund has a relatively low correlation of 0.23 with the SPY ETF. In fact, the GBTC ETF has even less correlation with stocks than the USO ETF, which has a correlation of 0.39.
Those who argue that bitcoin is its own asset class would point out that the GBTC has a very low correlation with stocks, gold, oil, Treasuries or even market volatility, according to the table.
Unfortunately, the correlation between bitcoin and SPY is much higher than the correlation between gold and SPY. In other words, bitcoin prices tend to fall a lot more than gold prices when the stock market is selling.
The VXX Volatility Fund has the highest negative correlation with SPY, but it comes with its own set of issues. Over the past five years, the VXX fund has fallen 77.2% overall due in large part to the loss in value via the contango.
TLT, on the other hand, has a negative correlation of 0.39 with SPY and has generated a positive total return of 18.7% over the past five years. This return is not great, but its track record suggests that TLT is a much better escape-to-safety investment and a hedge against the downside of the stock market than Bitcoin at this point.
Benzinga’s point of view: The fact that Bitcoin prices collapsed even harder than stock prices in March 2020 is the only proof investors need to know that cryptocurrencies are not a safe place to have your money during a crash. scholarship holder. This is because the positive correlation between the GBTC fund and the SPY fund has actually gone from 0.12 to 0.23 since March 2020.