Opinion: Bitcoin is Still Too Small to Possibly Be Correlated with Markets

On the same day that Wall Street took its hardest plunge since the 1987 Black Monday crash, Bitcoin’s price cratered from a touch under $8,000 per 1 bitcoin to the $3,700 handle within 24 hours. This is calling into question the entire thesis of Bitcoin as an uncorrelated asset.

Here’s why it shouldn’t.

Bitcoin Market Cap Is Too Small to Correlate

While Bitcoin has an impressive market cap for “fake Internet nerd money,” it is too small to possibly be correlated with markets.

People don’t seem to comprehend how early we still are in the adoption curve. They don’t realize how small the Bitcoin market cap is relative to major global commodities like oil or primary global securities like gold.

To put it in perspective, Bitcoin’s total market capitalization as of the time of writing was $106 billion. Not bad for “rat poison squared.” By year-end 2017, there was an estimated 190,040 tons of above ground, mined gold in the world. There are 32,150.7 troy ounces of gold in one ton of gold.

Gold vs. Bitcoin Market Cap

The spot price of one troy ounce of gold at the time of writing was $1,578.65. So the total value of all the mined gold in the world is some $9.6 trillion. Now, there’s something of financial import with enough mass to correlate – positively or negatively – with other major asset classes. In the case of gold, the correlation is historically negative over enough time.

The market for a security as deeply capitalized as gold is so vast that it averages out the statistical “noise,” so to speak of outlying transactions in the market place. Therefore the emerging market price bears an accurate correlation to other macro phenomena.

But Bitcoin is a much smaller vessel, so to speak, sailing through much choppier waters. The bounce or plummet in the Bitcoin price might not be a response to broader market forces, but one or two big players in the Bitcoin market bumping prices up and down markedly with whale-sized purchases or sell-offs.

Events That Can Fluctuate The Bitcoin Price Quickly

Analysts have determined the scammers that ran the PlusToken Ponzi scheme, which defrauded $2 billion worth of bitcoin and other cryptos from mostly Chinese and South Korean victims, moved $118 billion worth of bitcoin over the weekend.

They ran the coin through online bitcoin laundering services Sunday. That could have easily triggered a sell-off as the bitcoin flooded exchanges. Following that, there were suspects regarding the liquidity engines of BitMEX, the biggest derivates exchange.

Events like the above can quickly bounce the Bitcoin price in either direction.