Bitcoin and Stocks Move More and More Together, Increasing Risks of Contagion in Markets, IMF Says | Currency News | Financial and business news

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An IMF chart shows bitcoin and stocks have moved closer during the pandemic.

IMF

Bitcoin and stocks move increasingly in parallel and this poses risks to financial stability, the IMF said on Tuesday. Bitcoin’s volatility explains about a sixth of the S&P 500’s volatility during the pandemic. Crypto assets showed little correlation with major stock market indices before the pandemic.

Bitcoin and large-cap U.S. stocks have moved more in tandem since the COVID-19 crisis and this closer correlation suggests risks to financial stability, the International Monetary Fund said on Tuesday.

“Our analysis suggests that crypto assets are no longer on the fringes of the financial system,” the IMF said in a blog post noting that the correlation of bitcoin with the S&P 500 index has become higher than that between stocks and d ‘other long-standing asset classes such as gold, major currencies and investment grade bonds.

The stronger correlations suggest that the world’s most valuable cryptocurrency has acted like a risky asset, he said.

The correlation coefficient for daily trips was only 0.01 between 2017 and 2019, well before the coronavirus epidemic. However, “this measure rose to 0.36 for 202021, with assets moving more in parallel, increasing or decreasing together,” the institution said.

The volatility of the digital currency, valued at $ 812 billion on Tuesday, explains about a sixth of the volatility of the S&P 500 during the pandemic and about a tenth of the variation in the returns of the S&P 500, he said.

“As such, a sharp drop in Bitcoin prices can increase investor risk aversion and lead to lower investment in the stock markets. one market is passed on to another in a non-trivial way.

Bitcoin, ether, and other crypto assets showed little correlation with major stock market indices before the pandemic. But crypto prices and U.S. stocks have both skyrocketed amid heightened investor risk appetite after central banks around the world triggered unprecedented levels of financial support to ease the downside. impact of the health crisis.

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