Bitcoin has only been around for a little over a decade but it has changed the global economic system in more ways than one. Investors across the planet love it for the fact that it kicks the middleman (banks, government systems, etc.) out of the equation. It is also transparent, flexible, accessible, and has massive potential. There has also been an increase in the number of retail brokers offering bitcoin trading on their platforms.
On the other hand, Bitcoin is claimed to be a risky bet by a majority of risk-averters. This group of people thinks that the online currency is only experimental and can still go down. Having dropped 20% in value once in a few days’ time, their concerns are absolutely valid. So, is Bitcoin a reliable investment?
Correlation with Other Assets
Before making a complete conclusion on the question, it is important to look at how BTC correlates with other common assets out there.
Gold and Bitcoin
Gold has always been a safe haven for a number of investors. The reason is that the government keeps its reserve. When money becomes worthless, gold can be used to make trades. Investors bear the same sentiments. Rather than trusting an electronic system built 12 years ago, many would rather hold gold in their name.
The correlation between gold and BTC is increasing making investors curious. Many anticipate a price increase for BTC. After BTC reaching $11,392, the highest price in 2020, the monthly correlation index between the two assets stands at 0.66. The correlation also helped gold to break through $1,900 which is close to a new high.
Bitcoin and S&P500
Like gold, Bitcoin is also correlated and co-integrated with Standard& Poor 500. Basically, BTC is dependent on S & P 500 and rises or falls depending on the movements of S & P 500. After a one year correlation, Bitcoin recorded a high as the number one crypto in July 2020. The correlation index was -0.06 in January 2020 and rose to 0.367 by July—an all-time high that remained for three days. Historically, Bitcoin doesn’t exhibit any relations with traditional assets but as the crypto space matures, BTC changes along with it.
Is Bitcoin safe?
After looking at Bitcoin’s correlation with Gold and S&P500, it is safe to assume that the digital coin is safer than ever. Sure, the Covid-19 pandemic has thrown a spanner in the works but the coin is making progress in the right direction. As the economy weakens, investors are buying Bitcoin aka digital gold. It is essentially better than gold because it is undoubtedly more scarce.
Crypto also uses blockchain technology as a way to safeguard the security and integrity of data and transactions. The system leverages cryptography to both link and label verified blocks before they are added to the system. Adding blocks is what makes crypto hacker-resistant. So in summary, Bitcoin is safe, transparent, and holds up in tough conditions making it a reliable investment.
Bitcoin may seem risky for many investors. It is virtually hard to put your assets on the cloud where you don’t know if hackers will intrude. The volatility of BTC doesn’t help things as well. But as it turns out, the digital coin has proven itself to be a safe-bet investment.