Yesterday, we published a piece on the relationship between Bitcoin and the VIX Index and how this shows that Bitcoin is, in fact, not exactly an uncorrelated asset. In the conclusion of our article, we mentioned the importance of finding and developing indicators that can more accurately predict Bitcoin’s price movements.
Related to this, today, CoinDesk published a piece that appears to state that gold and Bitcoin are negatively correlated. Before we go into exactly what this means, keep in mind that the article in question stops short of stating this correlation as a complete fact.
With that in mind, we can then move on to detail what sort of relationship has been seen between Bitcoin and gold, as of late. Central to CoinDesk’s argument on the existence of this is the last 90 days of price movements of the two assets.
During this time, mathematically, the two assets showed what is called a correlation coefficient of quite close to -1. In statistics, if two variables show a correlation coefficient of -1, that means they have a perfect inverse correlation. In the case of Bitcoin and gold, this means that when one goes up, the other goes down.
As the entire basis of this argument reportedly rests on a period from last November to now, it should be made clear that this correlation is far from well-established. Three months does not equal a long-term trend.
Considering this, it seems necessary to reiterate the same conclusion that we made yesterday, related to the VIX index. Until more reliable indicators are developed with years of price movements to back them up, we should likely stop short of trying to establish correlations between Bitcoin and well-established assets.
In other words, maybe predictions on Bitcoin’s future price movements are largely wishful thinking at this time.
By: BGN Editorial Staff