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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!

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