Confusion on the correlation question

24 Jun 2020

Above are 3 line area charts superimposed, of the S&P 500, BTCUSD and ETHUSD.

There has been a lot of discussion about correlation generally with some parties stating that these markets are correlated and others stating that they are not.

It probably doesn't matter and how useful that information is to you. It depends on what you are planning on doing and what kind of decisions you are making, as well as what your paradigm is. I'm not a HODLer, as I cannot predict the future and won't hang my self esteem on whether I can or can't,... but I do want exposure if it does appreciate in value. How to achieve that?

What I see (and others may see this differently) is that these markets represent human collective psychology and clearly, are speculative assets. The apparent increase in volatility of cryptocurrency, to me represents their relatively reduced liquidity when compared to the stock market. Due to their reduced liquidity, there has to be a higher fluctuation in price to achieve a transaction. The current utility of cryptos is the fact that they are more volatile than the stock market, and generate opportunities for trading.

Whether these cryptocurrencies will have a long term use that is beneficial, remains to be seen. Value does not always equal utility. Bitcoin is testament to that, with its transaction times and costs becoming prohibitive any time there is a vague increase in interest in the space. We can't even think about running a world economy on that. Just look at the market cap, then compare that to the Stock market, then compare it to the FOREX market. If Bitcoin had a market cap of anywhere near either of these markets, it's transaction speeds and costs would render it next to useless, but it's value would be enormous. I don't believe the Bitcoin community will be able to solve the issue of scalability while it remains a proof of work, and a huge chunk of the community seems to have become climate science deniers and have no interest in moving it to proof of stake. (Seriously, if you are doubting the science about climate change because some dude on the internet who owns Bitcoin told you that it's all made up by the governments to control you,.... then perhaps you need to review your system for selecting accurate information sources)

I have a bias with Ethereum, and I hope that Eth 2.0 will solve the issues it is attempting to, but that bias keeps tempting me into positions which go against my trading rules, because I keep seeing what I want to "That Ethereum is going to the moon" instead of trading what is in front of me on the charts.

It's not clear to me that blockchains will replace corporations in the future as the arbitrary line in the sand which surrounds assets. I suspect they will in the long run, sit alongside each other. They do not do that now and we don't yet have the frameworks in place for that.

Until we do, trade what you see, not what you feel. If Ethereum does appreciate in the coming weeks, we may well have moved out of the accumulation phase, and enteers the ascending/ appreciation (or whatever you want to call it) phase. They say "even an idiot can make money in an ascending market". If that's doesn't turn out to be true, I might be screwed.