Bitcoin’s correlation with the AUD/JPY pair has strengthened, making it a key indicator of speculative sentiment and risk appetite.
The Shift from Digital Gold to Risk Proxy
Bitcoin, once considered a digital gold by bullish investors, has solidified its position as a proxy for risk. The cryptocurrency‘s correlation with the Australian dollar-yen rate has strengthened, making it a key indicator of speculative sentiment and risk appetite.
Bitcoin is a decentralized digital currency created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto.
It uses cryptography for secure financial transactions without the need for intermediaries like banks.
Bitcoin operates on a peer-to-peer network, allowing users to send and receive bitcoins directly.
The total supply of bitcoin is capped at 21 million, making it a finite resource.
As of 2022, the global market capitalization of bitcoin exceeds $1 trillion.
Correlation with Gold and Other Assets
The 90-day correlation coefficient between bitcoin and the AUD/JPY pair has flipped positive in late February, reaching its highest since November 2021. This is a stark contrast to its correlation with gold, which has dropped to -0.80, indicating that the two assets move in opposite directions.
A Closer Look at the Correlation
The correlation between bitcoin and gold is now at -0.80, while the AUD/JPY pair’s correlation with bitcoin stands at 0.80. This strong positive correlation suggests that bitcoin is closely tied to risk sentiment, much like the AUD/JPY pair.
The Role of Risk Currencies
The Australian dollar, being a China-sensitive currency, is seen as a risk currency. The yen, on the other hand, is considered a safe haven due to Japan‘s long history of net international creditor status and near-zero interest rates. When global markets are optimistic, the AUD tends to appreciate, reflecting a higher risk appetite among investors. Conversely, when markets become risk-averse, the AUD drops.
Bitcoin as a Risk Indicator
Traders closely monitor the AUD/JPY pair as a risk indicator, viewing uptrends as positive signs for risk assets like stocks and vice versa. Bitcoin has strengthened its position in this role, solidifying its status as a proxy for risk sentiment.
Conclusion
The correlation data suggests that bitcoin is now as much a proxy for risk sentiment as the AUD/JPY pair. As the U.S.-China trade war continues to introduce volatility into financial markets, investors are seeking assets that provide a hedge against this turbulence. Bitcoin’s role as a risk barometer will be closely watched in the coming months, and its implications for investors and traders will be significant.
