Every investor or capitalist looks forward to earning a higher rate of return on his investments. Towards this end, it’d be pertinent to ask if you should invest in stock markets or cryptocurrencies like Bitcoin, Litecoin, and Ethereum. Even the most seasoned of investors and financiers may not be able to offer a simple and straightforward answer.
A clear-cut and frank response to the above question may not be possible simply because there’s hardly any connection between the two financial markets.
Correlation Between Cryptocurrency and Stocks
For comparing the Cryptocurrency market with the time-honored stock market, there must be a degree of correlation between the two. To be specific does the price movements of stocks and bonds have any bearing on cryptocurrency exchange rate or vice-versa?
Bitwise Asset Management, a leader in crypto asset management industry, reported that the bitcoin’s association with bonds was only 0.25 while its correlation with stocks was even lesser (0.12).
Should you invest more in traditional assets or cryptocurrencies?
As of 2018, not even a faint correlation between the major cryptocurrencies and stocks became evident. The index for correlation (Bitcoin vis-à-vis stocks) was just 0.07 which is as good as zero. In 2019 as of now, the S&P 500 has plummeted 9.5% since December 13, 2018. On the other hand, the price of Bitcoin has gone up by 16.4 %.
Savvy investors always try to spread their investment portfolios to minimize the risk (of low returns). The consistent rise in the price of Bitcoin from 2011 to 2016 has hugely contributed to its overriding popularity.
So, traders looking to spread their risks of investing in conventional assets could put in a part of their investible surplus in cryptocurrency.
Bitcoin Could Rise During Economic Recession
Bitcoin remains immune from the adverse impact of macroeconomic factors, unlike bonds and stocks. Additionally, economists and financial market specialists believe that Bitcoin could register an impressive performance even during an economic recession.