The sudden plunge in the price of Bitcoin has demonstrated that while it lacks correlation with the broader financial market, it is not inversely correlated with the global market.
Bitcoin and major cryptocurrencies are considered as a robust store of value for investors to hedge against the broader financial market because of its lack of correlation with equities, stocks, currencies, and bonds.
Lack of Correlation is not Inverse Correlation
In an interview, Matt Hougan, the vice president of research and development at Bitwise Asset Management, stated that the fundamental drivers of crypto are different from that of the traditional finance market.
But, Matt emphasized that non-correlation is not equivalent to inverse correlation and as such, investors should not expect the price of Bitcoin to increase when the traditional finance market or the stock market declines in value.
“Non-correlation is not the same as inverse correlation so there’s no guarantee that when the market goes down crypto will go up. Over the long term, we think the fundamental drivers of crypto are different from the fundamental driver of equities and other assets, and we would expect the low correlation to persist,” Matt said.