“While it may increase valuations, it is also likely to increase correlations with other financial market variables, which will reduce the diversification benefit of holding the asset class,” the note says.
Zach Pandl and Isabella Rosenberg further described adoption as a “double-edged sword.” If Bitcoin or cryptocurrencies were more correlated to existing assets, the asymmetric profit margin would be reduced.
Bitcoin maintains a correlation with traditional asset indices such as Standard & Poor’s 500 (S&P 500) and Nasdaq. The provider of data on digital assets, Kaiko, said that in early January Bitcoin’s correlation with the Nasdaq and S&P 500 reached its highest level since July 2020.
Although the correlation of Bitcoin with traditional assets has increased, the appreciation of the first cryptocurrency is much higher than that achieved by said assets. At the close of 2021, Bitcoin appreciated over 60%, while the S&P 500 achieved a 29% return. Gold, for its part, closed last year with a negative return of -6%.
Source: Ambito
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