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An Uncorrelated Asset

Bitcoin is on yet another volatile, but upward, trajectory. My friends and family insufferably know that I’m a bitcoin champion because of my incessant preaching to them about the virtues of personally-secure money. They also know I’m a long time lover-of-bitcoin, not a skanky shitcoin shill who popped up out of nowhere overnight.

BD00 In Vietnam Tryin’ to out-love the “me so hawny”chick.

I’ve seen smart people describe bitcoin as an “uncorrelated” asset for quite some time now. Until very recently I thought it strange of them to say that. I look up the price of BTC daily and it seems qualitatively clear to me that bitcoin is positively correlated to the S&P 500 index. Every time the index goes up, BTC seems to go up. Every time the index goes down, BTC goes down.

Fidelity Research helped me understand why calling bitcoin an “uncorrelated” asset is quantitatively correct. The effort of Ria Bhutoria (Director of Research at Fidelity Digital Assets) dotted an “i” and crossed a “t” in my previously infallible mental model of the emerging role of bitcoin in the world. I snipped the following elegant table from her latest thesis (“Bitcoin’s Role As An Alternative Asset“) to record the correlation coefficients between the top financial assets in the world.

The first column clearly shows that bitcoin, like honey badger, don’t care about what other assets do. Unlike any of the other listed assets, none of bitcoin’s correlation coefficients cross the .2 threshold. Interestingly, bitcoin is less correlated to its biggest competitor, gold, than it is to stocks.

An uncorrelated asset like bitcoin is the best hedge against a global financial system crash that deflates the value of all other assets except for, perhaps, gold. But there’s no need to worry about that, right?

Honey Badger Don’t Give A Fuck!

Categories: Cancer Tags: ,
  1. December 11, 2020 at 12:27 pm

    I’m going to read this later but I wanted to give you a little free unsolicited financial math (not advice). Tesla’s stock price have multiplied more than the value of bitcoin in the last 2 years. I wouldn’t be surprised if the trend continues as they are the only company even making the attempt to create the batteries needed for the electric car demand over the next decade.

    • December 11, 2020 at 12:52 pm

      I owned Elon Musk’s Solar City, which automatically converted to Musk’s Tesla stock (through a buyout?) a few years ago. Thus, I’ve owned Tesla for about 5 years. It’s up over 500% this year alone. I’ve also owned Netflix and Amazon for well over 10 years.

      Big money institution quants and hedge fund managers have done their own math on bitcoin and that’s why they’re moving increasing amounts of money into it. Like Bitcoin itself, the risk-reward ratio bitcoin presents over the long term has never been seen before.

      Do you still have the bitcoin I sent you years ago? 😜

      • January 14, 2021 at 2:11 pm

        Tragedy of the commons. I had to sell almost all of my bitcoin to pay bills while being underpaid and unappreciated at a startup that was run badly. Luckily I used your gift as a push to start making my own investments in bitcoin too. I only got to about half a bitcoin before my finances and the price climbed higher than my risk aversion and discretionary investment cash. I only got to about a tenth this time around but I think I did the right thing by not gambling with money earmarked for paying off loans. Despite knowing which way the market was moving and missing out on a big payday I have it a little easier now that some of my major loans are paid off. Shooting for debt free this year. Hopefully I can turn that around later this year to being a proper investor again and getting my financial freedom back with the ability to take on some risk and hopefully reward. Wish me luck as I am considering diving into the deep end of the pool by trading options on crypto and stock if I’m not working somewhere with restrictions on my financial activity. .

      • January 14, 2021 at 6:58 pm

        Thank you for sharing your heartfelt story. I don’t get many comments like yours. Good luck to you my friend, and keep charging forward!

  2. January 15, 2021 at 1:57 pm

    Have I turned you on to the best podcast in the universe? Also the oldest podcast on the internet https://noagendashow.com Worth a listen to see if it’s for you. Lots of sarcasm which doesn’t translate in audio.

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