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Comparative analysis of the data of the four major safe-haven assets Is Bitcoin a safe asset?



The coronavirus outbreak has disrupted our daily lives. The places we love to visit every day have become deserted and our daily lives are restricted. Anxiety from the pandemic is being felt across the globe, and recent changes in the financial sector reflect that sentiment has spread across the globe. The global anxiety caused by the coronavirus pandemic is reflected in the financial sector, in the form of sharp declines in indices and unprecedented volatility. In such situations, people look for safe assets to limit losses and preserve capital. Gold and U.S. Treasuries are notoriously safe assets. If financial markets become unstable and uncertain, the prices of these assets will rise. It is often said that Bitcoin is as safe an asset as gold and U.S. Treasuries. Bitcoin is a relatively new asset, only 10 years old, but its non-inflationary nature and lack of government control make it attractive to investors looking to avoid the risk of inflationary monetary policy. The coronavirus pandemic appears to be a test for Bitcoin and its status as a safe-haven asset. If Bitcoin is considered such a currency, its price should see a similar rise to U.S. Treasuries and gold. If so, then we can safely say that Bitcoin is extending its power and earning people's trust. If Bitcoin is considered a safe asset, its price action should be similar to that of gold and Treasuries, as both are safe assets. In order to test this hypothesis, the following series of correlation analyzes were specifically conducted to examine the relationship between Bitcoin and four assets widely considered safe choices in volatile markets. Analysis Related Objectives: BTC/USD, S&P 500, Gold and US 10-Year Treasuries Analysis Time Frames and Their Uses: Bank of America Downgrades Coinbase to Neutral After FTX Event: Golden Finance Report, Bank of America Cryptocurrency exchange Coinbase (COIN) now faces a number of new headwinds due to the collapse of rival FTX, while downgrading the stock to neutral from buy, said on Friday. The bank also cut its price target on Coinbase (COIN) to $50 from $77. The stock edged up to $49.23 in premarket trading, but is down nearly 30% since the start of the month. While Bank of America is sure that Coinbase is not another FTX, that doesn’t make the company immune to the broader implications of the crypto market. [2022/11/19 13:23:43] Time: January 2017 to March 2020 Purpose: Through the study of historical data, establish the general trend. When: February to March 2020 Purpose: To examine the impact of the coronavirus pandemic and compare it with trends identified in previous analyses. Background on selected assets: The following four assets are considered safe-haven assets by most investors. The U.S. dollar; the S&P 500; gold; the U.S. 10-year Treasury note; let's briefly look at some of the unique characteristics associated with these assets. When the market is extremely uncertain about the future, the U.S. dollar is the first choice because its value is relatively stable and it is the most liquid and useful store of value. The S&P 500 Index is made up of companies representative of U.S. industries. Stocks included in the index are considered safer than stocks not included in the index. Thailand's SEC approves revision of capital requirements for digital asset operators: July 12 news, according to official announcements, Thailand's Securities and Exchange Commission (SEC) has approved the revision of capital requirements for digital asset operators, requiring digital asset operators to have sufficient funds to Support business operations, thereby improving the protection of transaction users and the credibility of operators' digital asset business. Specific rules include improving the initial capital system for business operations (increasing paid-in capital), improving the capital custody system, etc. For new applicants, the above criteria will be effective from the date of publication in the Government Gazette. For existing commercial operators, the SEC has decided to develop a transitional provision. [2022/7/12 2:08:12] Gold and U.S. Treasuries are considered safe assets, so history tells us that when people feel fear, the prices of these assets rise. Therefore, comparing Bitcoin to these assets should help us understand how people perceive Bitcoin. (For the analysis, daily data from January 2017 to March 2020 was used. Due to the lack of Bitcoin data before January 2017, the analysis can only cover a 3-year time period.) Step1 Establish the overall trend ( Baseline) Pre-Coronavirus Analysis Data Prep: Scaled Price Charts Before starting the analysis, let's draw attention to the price charts of these 5 assets: Bitcoin, S&P 500, USD, Gold, and US Treasuries. From January 2017 to March 2020, you can see five asset prices. The Polygon chain P2E game Ethlas received US$2.7 million in seed round financing, Sequoia Capital India and others participated in the investment: On February 15, the Polygon-based P2E game Ethlas announced the completion of a US$2.7 million seed round of financing. This round of financing was funded by Sequoia Capital India, YGG Southeast Asia, Global Blockchain Innovative Capital, Venturra Capital, Play It Forward DAO, Blockchain Space, Genesis Fund, Deus Ex DAO, Hustle Fund and others participated in the investment. [2022/2/16 9:55:12] Caption: Scaled price graphs for five assets from January 2017 to March 2020 The chart below includes all five charts for comparison. The legendary "price" is the proportional pricing of Bitcoin. Correlation Analysis of Assets Daily log returns are used to understand potential correlations between these five assets. The results are shown in the table below. Caption: Pearson correlation analysis results of five types of assets (January 2017-March 2020) What is the correlation and how do people interpret the value? Just remember three things. Polygon has reached a partnership with Alchemy Pay to provide DeFi with a fiat currency payment portal: On November 8th, the Ethereum Layer 2 network Polygon announced a partnership with Alchemy Pay, a mixed payment gateway solution provider for cryptocurrency and fiat currency. Increase the entrance of fiat currency payment. Polygon said that more than 4,000 custody applications in its DeFi ecosystem can now use fiat currencies to conduct transactions on its DeFi applications through traditional financial payment platforms (such as Visa, Mastercard, PayPal) and multiple local payment channels around the world. [2021/11/9 6:39:40] ●When two variables show similar movements, there is a positive correlation between them. Example: The prices of A and B increase during the same period. ● When two variables move in opposite directions, there is a negative correlation between them. Example: During the same time period, the price of A increases and the price of B decreases. ● According to experience, when the absolute value of the coefficients (without +/- sign) of two variables is greater than or equal to 0.6, there is a strong positive or negative relationship between them. The dollar is negatively correlated with gold (-0.357290). In other words, their prices move in opposite directions within a given time frame. This makes sense because if the dollar is weak, people are more willing to invest in gold to preserve capital. One of the main factors for the weakening of the dollar is the actions of the US government leading to printing more dollars (quantitative easing, stimulus, etc.). U.S. Treasuries show some degree of correlation when paired with the U.S. dollar, the S&P 500, and gold. Pantera Capital raises $600 million for new cryptocurrency fund: Jinse Finance reports that cryptocurrency investment firm Pantera Capital has raised $600 million for its fourth fund, about 75% of which came from institutional investors, such as donations fund. The institutional backing is a change from the firm's $175 million fund in 2018, which was largely funded by wealthy cryptocurrency investors. Pantera expects the fund to hit $1 billion when it closes in March. The fund will invest in venture equity, crypto tokens already launched and tokens under development. In September, Pantera raised $369 million for its then-new blockchain fund. As of August, the firm had $4.7 billion in assets under management. (coindesk) [2021/11/24 22:13:03] Time frame conclusion: BTC has no correlation with other assets. Preliminary correlation analysis shows that Bitcoin has no correlation with the four assets of the US dollar, S&P 500, gold and US Treasuries. In short, Bitcoin's price action has nothing to do with these four assets. The upward price trend of the S&P 500 has nothing to do with the price action of Bitcoin. Step2 Is BTC really a safe asset during the coronavirus pandemic? Do the same analysis and compare during the coronavirus pandemic. Correlation analysis shows that within the set period of time (January 2017 to March 2020), there is no close relationship between Bitcoin price changes and these four assets. Now, the time frame needs to be narrowed down to answer the main question: Is Bitcoin a safe asset? To find out, the time frame of the analysis is locked to February-March 2020. Take a closer look at the period and examine the performance and correlation of these five assets. First a quick recap of the conditions that must be met by Bitcoin, in analysis, for this asset to safely claim itself as a safe-haven asset and prove itself worthy of its moniker: digital gold. If Bitcoin is considered a safe-haven asset, its price action should be similar to that of gold and U.S. Treasuries, which are considered by many to be safe assets. In other words, the price of Bitcoin should increase during the current coronavirus pandemic. Why? Because as more and more people choose to invest in Bitcoin to protect their capital from other assets, this demand will naturally rise. One analysis you absolutely cannot miss is comparing Bitcoin and the US dollar. In theory, in the current monetary environment, the U.S. dollar should weaken and Bitcoin should strengthen. Why? Many governments, especially the United States, have printed trillions of dollars to overcome the recession caused by the coronavirus. This is known as quantitative easing (QE). A side effect of QE is that it reduces the real value (purchasing power) of the dollar due to the increase in the number of dollars. This is in stark contrast to Bitcoin, because the total amount of Bitcoin is fixed by design. In fact, after the 2008 financial crisis, Bitcoin was primarily considered a means of value protection against government inflationary policies. Data Prep: Asset Performance Under Coronavirus The worst price drop among these assets was U.S. Treasuries, which fell -54%; followed by Bitcoin, which fell 31%, the S&P 500, which fell 20%, and gold, which fell 0.9%, the dollar fell 1.1%. Surprisingly, of all four assets, the U.S. 10-year Treasury bond was the worst performer. U.S. Treasuries, a well-known safe haven, are viewed as one of the better assets in a highly volatile market. Bitcoin didn’t fare too well either, at -31%, worse than the S&P 500. Meanwhile, gold and the U.S. dollar are doing relatively well. Interestingly, the dollar is a winner during the coronavirus pandemic, despite the unprecedented and unlimited quantitative easing in the US to prevent a deep recession. Caption: Histogram representing the price decline of 5 assets (February 2020-March 2020) Correlation Analysis of Assets The following four charts show the correlation of these four assets with Bitcoin. Prices in the graph are calculated in terms of Bitcoin prices. The green triangles in the graph indicate the moments when the correlation coefficient is less than -0.3 (except the gold ones). In other words, the green dots are the points where the two prices are likely to move in opposite directions. For example, if the USD price falls, the BTC price rises. Of all the pairs, a BTC-USD correlation analysis will give us the most meaningful insight, as USD is the most stable asset during the coronavirus outbreak. Therefore, if BTC has a consistently strong correlation with USD, it may indicate that Bitcoin is considered a safe asset (as is gold) amidst the coronavirus pandemic. The following is the rolling correlation data for 20 days from February to March 2020 Caption: BTC-USD Correlation Caption: BTC S&P 500 Caption: BTC-US 10-Year Treasury Correlation Caption: BTC - Gold Correlation Step3 Conclusion Our analysis shows that BTC and USD are correlated. However, whether this correlation is positive or negative is unclear. Before March 14, the price of Bitcoin was in line with the U.S. dollar (positive correlation), and after the 14th, it was the opposite (negative correlation). This inconsistency suggests that it is too early to determine the exact nature of their relationship. Gold, on the other hand, has shown some degree of correlation with Bitcoin since mid-February. Although the correlation is not very strong, the trend still exists. If the price of gold rises, the price of Bitcoin will also rise. Through the analysis of the above few pictures, the nickname "digital gold" seems to be very appropriate. But bitcoin is not a safe asset, at least not in the context of the current coronavirus pandemic. Bitcoin price is cross-referenced with four assets: US dollar, S&P 500, US Treasuries and gold to answer the current question, Is Bitcoin a safe-haven asset? According to our analysis, Bitcoin is not a safe-haven asset, at least in the context of the coronavirus pandemic. Extreme uncertainty in financial markets has led to a greater preference for the dollar. Even in the face of the US government's quantitative easing policy, the huge demand still maintains the strength of the dollar. It is too early to say whether Bitcoin is a safe-haven asset or not. Judging from the number and volume of transactions on the network, there are still a large number of Bitcoin believers in the market. From the analysis, we can draw a valuable insight: Bitcoin has independence from traditional assets, which makes it a good hedging asset. In the long run, people will prefer Bitcoin to USD, because the total amount of Bitcoin is fixed, while USD is not. While the U.S. dollar is vulnerable to inflationary pressures because the U.S. government can print money as needed, Bitcoin is immune to government regulation.


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