Ever since the COVID-19 pandemic started to grip the world’s economy three months ago, Bitcoin has been seemingly correlated to the S&P 500.
Below is a chart of Bitcoin with the futures of the leading index (in blue). As can be seen, save for some slight deviations in the middle and right-hand side of the chart, the leading cryptocurrency has seemingly traded in hand with the S&P 500, rallying when it does and crashing when it crashes.
Despite this, a prominent billionaire and long-time Bitcoin bull has asserted that the cryptocurrency remains the most uncorrelated asset in the investment space.
Bitcoin Is Still An Uncorrelated Bet
Chamath Palihapitiya — one of the first executives at Facebook and the CEO of Social Capital — sat down with CNBC on Tuesday morning to talk markets, Bitcoin included.
Responding to the news that billionaire hedge fund investor Paul Tudor Jones has publicly announced his support for the cryptocurrency, Palihapitiya suggested that he’s doing so to add a truly uncorrelated asset into his portfolio:
Even he is looking at Bitcoin. The reason is because […] you need to figure out how to protect yourself. However you think about it — from a classic economic theory or the “shmuck insurance” or you’re skeptical of the established governing masses — it is important that we have a hedge. And I still struggle to find anything that is as uncorrelated to anything else and to everything else than Bitcoin.
"Now all of a sudden even he [Paul Tudor Jones] is looking at #btc and the reason is because we are in this massive deflationary spiral," says @Chamath. "I still struggle to find anything that is as uncorrelated to anything else and to everything else than #bitcoin." pic.twitter.com/TzIG9H05dq
— Squawk Box (@SquawkCNBC) May 12, 2020
This comes in spite of a report from the Federal Reserve of Kansas City which noted that during periods of economic “stress,” Bitcoin has a positive correlation with the S&P 500 index to a level “significant at the 5% level.”
On the other hand, during periods of stress, prices of both the 10-year Treasury bond and an ounce of gold have a slightly negative correlation to the S&P 500.
On the safe-haven and hedge narrative oft-used in the Bitcoin space, the central bank concluded.
Overall, our results suggest that the 10-year Treasury has generally exhibited safe-haven behavior, gold has occasionally exhibited safe-haven behavior, and Bitcoin has never exhibited safe-haven behavior since its introduction.
Price Could Go to $1 Million
Palihapitiya’s latest attempt to support Bitcoin comes just a month after he told Anthony Pompliano of Morgan Creek Digital that the cryptocurrency could trade at a price of millions and beyond in the long run.
As to why he thinks this is the case, the investor remarked that the global economy is driving “towards a cliff” whereas there is likely to be a massive deflationary or inflationary event, depending on how governments and central banks act.
He believes this cliff, so to say, has the potential to push Bitcoin into a place where it could “emerge as a flight to safety.”
In a deflation scenario, Bitcoin could act as a hedge against the collapse of debt and traditional institutions, especially as sovereign nations default; in the inflation scenario, BTC’s scarcity would likely allow it to easily outperform the dollar and other fiat currencies, which would be devalued as money printing forces money to enter scarce assets.
As Palihapitiya put it best, Bitcoin is the “schmuck insurance you put under your mattress.”