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On Monday, during my weekly sit-down with America's most-watched business TV host, Stuart Varney, the topic of a flight to safety came up. A flight to safety is when investors sell what they perceive to be higher-risk investments for safer ones.
But Stuart didn't want to know about your traditional, run-of-the-mill flight to safety in assets like gold or U.S. treasuries. Instead, he asked about one of the newer assets available to investors these days…
Stuart mentioned that Bitcoin had recently reached its highest level since October, and he asked me if the cryptocurrency's big move up since early December was due to a flight to safety over coronavirus concerns.
Take a look…
Stuart is likely correct that the coronavirus scare has led many to seek a safe haven that can still deliver profits in the event of a market downturn.
But there's a major Reality Gap that has formed between what investors believe Bitcoin will do in a market downturn or recession and how the cryptocurrency will actually perform.
Here's what I mean…
A Crypto Safe Haven Is a False Notion
The problem starts with how certain "experts" or "analysts" are talking about Bitcoin – specifically about how it'll perform in the face of a market pullback.
For example, I recently came across this quote from Nigel Green, chief executive of the financial advisory deVere Group, who said…
"The more individual [coronavirus] cases that are identified, the more countries around the world that are affected, and the greater the impact on traditional financial markets, the higher the price of Bitcoin has jumped."
And then there's this from blockchain investment and advisory firm Kinetic Capital's managing partner Jehan Chu…
"As trust in global institutions and markets continues to deteriorate, we will see highly mobile digital assets like Bitcoin explode in value."
The issue that I take with quotes like these (which can be found in numerous financial publications) is that they give investors the impression, whether intentionally or not, that cryptocurrencies like Bitcoin are bound to rise when traditional financial markets fall.
And therein lies the fallacy.
As I told Stuart on Monday, Bitcoin is not correlated to the S&P 500 (the broadest of the major indexes, and a proxy for the U.S. stock market), and I've got the data to prove it…
What the Data Says About Correlation
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.