08-01-2021, 11:08 PM
Is BTC truly a hedge against a failing economy?
<table> <tr><td> <a href="https://www.reddit.com/r/CryptoCurrency/comments/ovu4wu/is_btc_truly_a_hedge_against_a_failing_economy/"> <img src="https://b.thumbs.redditmedia.com/HirAcy8a5z3MRTI70Cq_rFwddzwsvKr-gxp_EpLvTJU.jpg" alt="Is BTC truly a hedge against a failing economy?" title="Is BTC truly a hedge against a failing economy?" /> </a> </td><td> <!-- SC_OFF --><div class="md"><p>BTC is widely considered to be a strong hedge against inflation and a failing economy (as is crypto in general) - primarily due to capped total supplies or deflationary tokenomics.</p> <p>In extreme scenarios i.e. third-world, developing or war-torn nations, this is undoubtedly true. BTC offers an economic lifeline to those in, e.g., Venezuela, who experienced +65,000% inflation in 2018.</p> <p>But what about in developed nations? Is there any evidence for this assertion?</p> <p>Historically, BTC's correlation to traditional assets has been low to non-existent, as tabulated and visualised below:</p> <table><thead> <tr> <th align="left"><em>Year</em></th> <th align="left"><em>2020</em></th> <th align="left"><em>2019</em></th> <th align="left"><em>2018</em></th> <th align="left"><em>2017</em></th> <th align="left"><em>2016</em></th> <th align="left"><em>2015</em></th> <th align="left"><em>2014</em></th> <th align="left"><em>2013</em></th> </tr> </thead><tbody> <tr> <td align="left"><strong>S&P 500</strong></td> <td align="left">0.22</td> <td align="left">-0.09</td> <td align="left">0.04</td> <td align="left">-0.01</td> <td align="left">-0.01</td> <td align="left">0.01</td> <td align="left">-0.03</td> <td align="left">-0.12</td> </tr> <tr> <td align="left"><strong>U.S. Bonds</strong></td> <td align="left">0.07</td> <td align="left">0</td> <td align="left">-0.03</td> <td align="left">0.04</td> <td align="left">0.04</td> <td align="left">-0.06</td> <td align="left">0.04</td> <td align="left">0.1</td> </tr> <tr> <td align="left"><strong>Gold</strong></td> <td align="left">0.34</td> <td align="left">0.14</td> <td align="left">-0.02</td> <td align="left">0.01</td> <td align="left">0.07</td> <td align="left">0.04</td> <td align="left">-0.08</td> <td align="left">-0.04</td> </tr> <tr> <td align="left"><strong>U.S. Real Estate</strong></td> <td align="left">0.17</td> <td align="left">-0.09</td> <td align="left">-0.03</td> <td align="left">0.04</td> <td align="left">-0.03</td> <td align="left">0.01</td> <td align="left">-0.01</td> <td align="left">-0.1</td> </tr> <tr> <td align="left"><strong>Oil</strong></td> <td align="left">0.23</td> <td align="left">0.02</td> <td align="left">0</td> <td align="left">0.06</td> <td align="left">0.03</td> <td align="left">0</td> <td align="left">0</td> <td align="left">-0.03</td> </tr> <tr> <td align="left"><strong>Emerging Market Currencies</strong></td> <td align="left">0.25</td> <td align="left">-0.02</td> <td align="left">0.07</td> <td align="left">-0.04</td> <td align="left">-0.07</td> <td align="left">-0.04</td> <td align="left">-0.03</td> <td align="left">-0.07</td> </tr> </tbody></table> <p><a href="https://preview.redd.it/f78ysycyhre71.png?width=1221&format=png&auto=webp&s=f386fad5d1a75ae7bfb38bb9d9e5a360de2b4d24">Annual correlation to BTC. Source: VanEck, Feb 2021.</a></p> <p>However, in 2020, this correlation began to strengthen - with BTC now displaying, in particular, a moderate correlation (0.34) to Gold (a classical hedge). Interestingly, these correlations, so far, have weakened in 2021.</p> <p>To put this into perspective, the S&P 500 showed a correlation to U.S. Real Estate and Oil of 0.73 and 0.34 respectively (between 2012-2020).</p> <p><strong>Conclusion</strong>: BTC typically moves independently of the wider economy, as expected for a niche and nascent market. But as institutional investment increases and the space grows, this may no longer be true going forward.</p> <p>Does this mean you can safely ignore the wider economy? <strong>NO!</strong></p> <p>The above data shows <em>global</em> correlations. BTC has and will always show <em>local</em> correlations:</p> <p><a href="https://preview.redd.it/vctr37h2jre71.png?width=860&format=png&auto=webp&s=c31c5f8dcd42daa67c2c19a7b88ac761502208be">Correlation between S&P 500 and BTC. March-August 2020 i.e. COVID-19.</a></p> <p>There is no causation here. The S&P 500 and BTC simply respond to the same macro-economic stimuli - inflation/liquidity injections, world events (e.g. COVID-19) and so forth. <strong>In times of economic uncertainty, people will liquidate assets regardless of what those assets are.</strong></p> <p>It's also important to remember that BTC was created in response to the last, significant crash (2008). BTC will be battle-tested now going into 2022 - arguably for the first time - as the full effects of COVID-19 and reckless federal reserve policy hit.</p> <p>Ultimately, if the economy crashes, so will BTC. There is no way around that - the economy will take everything with it.</p> <p><strong>Is BTC truly a hedge against a failing economy?</strong> IMO, not yet or it remains to be seen, but it has potential. This subreddit is an echo chamber and it's easy to have tunnel-vision when investing in crypto - as if no other economies or assets exist. My advice to you is to avoid this, educate yourselves and keep an eye on the wider economy. It <em>will</em> affect your portfolio.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Zarkorix"> /u/Zarkorix </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/ovu4wu/is_btc_truly_a_hedge_against_a_failing_economy/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/ovu4wu/is_btc_truly_a_hedge_against_a_failing_economy/">[comments]</a></span> </td></tr></table>Kind Regards R
<table> <tr><td> <a href="https://www.reddit.com/r/CryptoCurrency/comments/ovu4wu/is_btc_truly_a_hedge_against_a_failing_economy/"> <img src="https://b.thumbs.redditmedia.com/HirAcy8a5z3MRTI70Cq_rFwddzwsvKr-gxp_EpLvTJU.jpg" alt="Is BTC truly a hedge against a failing economy?" title="Is BTC truly a hedge against a failing economy?" /> </a> </td><td> <!-- SC_OFF --><div class="md"><p>BTC is widely considered to be a strong hedge against inflation and a failing economy (as is crypto in general) - primarily due to capped total supplies or deflationary tokenomics.</p> <p>In extreme scenarios i.e. third-world, developing or war-torn nations, this is undoubtedly true. BTC offers an economic lifeline to those in, e.g., Venezuela, who experienced +65,000% inflation in 2018.</p> <p>But what about in developed nations? Is there any evidence for this assertion?</p> <p>Historically, BTC's correlation to traditional assets has been low to non-existent, as tabulated and visualised below:</p> <table><thead> <tr> <th align="left"><em>Year</em></th> <th align="left"><em>2020</em></th> <th align="left"><em>2019</em></th> <th align="left"><em>2018</em></th> <th align="left"><em>2017</em></th> <th align="left"><em>2016</em></th> <th align="left"><em>2015</em></th> <th align="left"><em>2014</em></th> <th align="left"><em>2013</em></th> </tr> </thead><tbody> <tr> <td align="left"><strong>S&P 500</strong></td> <td align="left">0.22</td> <td align="left">-0.09</td> <td align="left">0.04</td> <td align="left">-0.01</td> <td align="left">-0.01</td> <td align="left">0.01</td> <td align="left">-0.03</td> <td align="left">-0.12</td> </tr> <tr> <td align="left"><strong>U.S. Bonds</strong></td> <td align="left">0.07</td> <td align="left">0</td> <td align="left">-0.03</td> <td align="left">0.04</td> <td align="left">0.04</td> <td align="left">-0.06</td> <td align="left">0.04</td> <td align="left">0.1</td> </tr> <tr> <td align="left"><strong>Gold</strong></td> <td align="left">0.34</td> <td align="left">0.14</td> <td align="left">-0.02</td> <td align="left">0.01</td> <td align="left">0.07</td> <td align="left">0.04</td> <td align="left">-0.08</td> <td align="left">-0.04</td> </tr> <tr> <td align="left"><strong>U.S. Real Estate</strong></td> <td align="left">0.17</td> <td align="left">-0.09</td> <td align="left">-0.03</td> <td align="left">0.04</td> <td align="left">-0.03</td> <td align="left">0.01</td> <td align="left">-0.01</td> <td align="left">-0.1</td> </tr> <tr> <td align="left"><strong>Oil</strong></td> <td align="left">0.23</td> <td align="left">0.02</td> <td align="left">0</td> <td align="left">0.06</td> <td align="left">0.03</td> <td align="left">0</td> <td align="left">0</td> <td align="left">-0.03</td> </tr> <tr> <td align="left"><strong>Emerging Market Currencies</strong></td> <td align="left">0.25</td> <td align="left">-0.02</td> <td align="left">0.07</td> <td align="left">-0.04</td> <td align="left">-0.07</td> <td align="left">-0.04</td> <td align="left">-0.03</td> <td align="left">-0.07</td> </tr> </tbody></table> <p><a href="https://preview.redd.it/f78ysycyhre71.png?width=1221&format=png&auto=webp&s=f386fad5d1a75ae7bfb38bb9d9e5a360de2b4d24">Annual correlation to BTC. Source: VanEck, Feb 2021.</a></p> <p>However, in 2020, this correlation began to strengthen - with BTC now displaying, in particular, a moderate correlation (0.34) to Gold (a classical hedge). Interestingly, these correlations, so far, have weakened in 2021.</p> <p>To put this into perspective, the S&P 500 showed a correlation to U.S. Real Estate and Oil of 0.73 and 0.34 respectively (between 2012-2020).</p> <p><strong>Conclusion</strong>: BTC typically moves independently of the wider economy, as expected for a niche and nascent market. But as institutional investment increases and the space grows, this may no longer be true going forward.</p> <p>Does this mean you can safely ignore the wider economy? <strong>NO!</strong></p> <p>The above data shows <em>global</em> correlations. BTC has and will always show <em>local</em> correlations:</p> <p><a href="https://preview.redd.it/vctr37h2jre71.png?width=860&format=png&auto=webp&s=c31c5f8dcd42daa67c2c19a7b88ac761502208be">Correlation between S&P 500 and BTC. March-August 2020 i.e. COVID-19.</a></p> <p>There is no causation here. The S&P 500 and BTC simply respond to the same macro-economic stimuli - inflation/liquidity injections, world events (e.g. COVID-19) and so forth. <strong>In times of economic uncertainty, people will liquidate assets regardless of what those assets are.</strong></p> <p>It's also important to remember that BTC was created in response to the last, significant crash (2008). BTC will be battle-tested now going into 2022 - arguably for the first time - as the full effects of COVID-19 and reckless federal reserve policy hit.</p> <p>Ultimately, if the economy crashes, so will BTC. There is no way around that - the economy will take everything with it.</p> <p><strong>Is BTC truly a hedge against a failing economy?</strong> IMO, not yet or it remains to be seen, but it has potential. This subreddit is an echo chamber and it's easy to have tunnel-vision when investing in crypto - as if no other economies or assets exist. My advice to you is to avoid this, educate yourselves and keep an eye on the wider economy. It <em>will</em> affect your portfolio.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Zarkorix"> /u/Zarkorix </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/ovu4wu/is_btc_truly_a_hedge_against_a_failing_economy/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/ovu4wu/is_btc_truly_a_hedge_against_a_failing_economy/">[comments]</a></span> </td></tr></table>Kind Regards R