Updated: Jan 10
2019 has been a fantastic year for the US stocks, with the major indices achieving all time highs. I have wrote an earlier article comparing the STI index with the various major US indices, and you may take a look if you are curious how is our own local index performing.
So while investors for US stocks had been all celebrating and cheering, the cryptocurrency scene has been performing relatively badly since the all highs reached in late 2017.
Here is the price chart for Bitcoin since 2017 till now.
You could see from that the price of Bitcoin has struggled to return to its all-time high since Dec 2017. The highest price Bitcoin has achieved since then is around 13,000 USD in June 2019. Back then, many believe it was the revival of Bitcoin to reach a new all-time high. Unfortunately, the price of Bitcoin has been in a constant fall since then, with the prices even falling below 7000 USD recently. This is in stark contrast with the incredible growth that the US stocks have achieved in the the same period.
However, it's also worthy to know that the general trend line is still very much positive for Bitcoin as you can see from the graph. This goes to show there is a high chance you are in the profit region if you had bought bitcoin 3 years ago and hold it till now.
Now, how does it compares again the US indices then?
The r coefficient for the Bitcoin price chart is 0.47, while the r coefficient for the DJI chart is 0.905. Thus this still goes to show that your money is better off investing in the US indices if your strategy is to buy and hold.
Are we able to find a relationship between DJIA and Bitcoin prices then? Do Bitcoin prices typically increase when the US stock market is performing?
Here is a scatter plot between DJIA and Bitcoin.
The r coefficient for the trend line is 0.668. While that does not show that DJIA and Bitcoin has a perfect correlation, it does show that Bitcoin prices do move in tandem with DJIA for a number of periods over the past 3 years, except for the end of 2017 where Bitcoin has an astronomical growth, and also now where Bitcoin prices are badly beaten down with DJIA approaching new highs.
The next Bitcoin halving date is estimated to happen on May 16, 2020. If you want to better understand what Bitcoin halving is, you may refer here. History so far has seen that Bitcoin prices always increase after the halving.
In 2012, the price of Bitcoin on its halving date is 12.35 USD. 150 days later, the price of Bitcoin rises to 127 USD.
In 2016, the price of Bitcoin on its halving date is 650.63 USD. 150 days later, the price of Bitcoin rises to 758.71 USD.
2020 will be the third time Bitcoin will have its halving. With the Bitcoin prices being beaten and in stark contrast with the US stock performance, coupled with a certain expectation that Bitcoin prices will increase after its halving, Bitcoin might be well worth a second look.
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