Correlations Now, All-Time Highs Later

By Bruce Ng and Juan M. Villaverde on June 22, 2020

On Friday, we highlighted the fact that during major market crises, the prices of all assets move together.

That’s because, when things get really, really bad, you sell what you can. We saw it in February and March as the impact of COVID-19 ravaged equities and crypto alike.

At the same time, Bitcoin and other cryptocurrencies bounced off the March 13 lows and have rallied right alongside stocks.

Indeed, as we noted in a Saturday morning tweet, “The only issue with BTCs price action in the last few weeks is that it’s trading in lockstep with equity indices.”

We’re also seeing stepped-up interest from institutional investors in the aftermath of Bitcoin’s third halving in May. That’s a good sign of confidence in its continuing uptake and rising utility. But there are negative implications, too.

As Bitcoin matures, it should establish its own trading profile. In fact, that has to happen for it to break out to new all-time highs from these levels ...

The COVID-19 crisis has once again exposed the fragilities of the old-school financial system. And the response of old-school policymakers will, of course, only exacerbate those fragilities. Eventually, that soft-money system will fail.

Bitcoin is still distinguishing itself from fiat currency. It’s still making itself known to the investor community. And the general public still has very little idea of it.

More and more, though, events highlight its strengths as an alternative medium of exchange and store of value.

Best,

Juan and Bruce

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