Trading Concepts

Bitcoin Correlations

Knowledge and experience are key elements in successfully trading any financial market. Part of having a solid base of trading knowledge lies in knowing how markets generally relate with and react against each other. Intermarket analysis is the study of price correlations among different markets and how market prices may or may not be impacted as a result.

When trading Bitcoin, traders have discovered that its fundamental correlations with other global financial assets have tended to shift over time and are usually not nearly as robust as other, more established correlations.

For example, the strong inverse relationship between the US dollar and gold is both well-documented and reliable. The same generally cannot be said of the current correlation between Bitcoin and gold, or that of Bitcoin and any traditional currency like the US dollar, euro, or yen.

Bitcoin’s characteristic of low correlation with other markets could further boost its appeal as a tradable asset.

As most markets currently available for trading are correlated in some way or another with other markets, the emergence of a relatively uncorrelated asset like Bitcoin provides a potential opportunity to diversify trading and investment strategy