Correlation and Regression Analytics of Bitcoin and S&P500 - An Efficient Tool for Hedging

Mati Greenspan, a senior market analyst at eToro, described the potential shifts in the gamut of the cryptocurrency market in an analytic framework.

As per his analytic piece, “the prime benefit that many economists and portfolio managers are now perceiving the use of crypto-assets as an efficient tool for money management”.

He then runs us through the correlation between the Bitcoin and S&P 500 trend. 

Greenspan emphasizes on how do we need to contemplate the situation that merely the general public from the last couple of years has traded in bitcoin. While it is noticed that a record-breaking bull run in stocks during this span. Thus, there is no indication as to how and what might happen if bears ever end up visiting Wall Street.

He then inferred that the lack of correlation between Bitcoin and the stock market signifies an efficient tool for hedge fund managers.

Another exciting feature of the prediction model is that the linear regression between Bitcoin price volatility and NASDAQ Composite Index. The correlation is high for both metrics. However, it has given a caution this relationship by saying that Bitcoin has been in existence for nine years. Those entire nine years, the Nasdaq has been on a “bull run”. Only time would state as to how any bearish trends affecting the Nasdaq likely to affect the price of Bitcoin.

Based on which, the investors and traders, contemplating trend direction and price forecasts, can hedge their exposures using crypto-derivatives instruments. To evaluate the future prices for this unconventional currency BTCUSD. Pricing BTC vanilla options that are available at companies’ like, ORE and Sentrix that are not straight forwards as the underlying instrument (BTCUSD) is a new and a heavily volatile asset class. Nonetheless, they seem to be exploiting with advanced mathematical models and techniques in order to attempt and infer future price behavior of BTC.

While capitalizing on such Bitcoin vanilla options, BTC option traders can get a clarity about bitcoin future prices and volatility to certain extent.

From January to till date has been the eventful months for bitcoin bears, with bears who are eager to short and gain despite the falling market being able to access bitcoin directly through futures made available through CME and CBOE.

Currency Strength Index: FxWirePro's hourly BTC spot index is flashing at -92 (which is bearish), while hourly USD spot index was at 34 (bullish), while articulating at 12:32 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex