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Trading Bitcoin’s Correlation Reversal with US Stocks

Exclusive Research

  • Bitcoin has a low correlation with Tech stocks and emerging market stocks.
  • However, there is an opportunity to profit from correlational reversals.
  • Correlational reversal is highest between the iShares US Tech ETF and the Russell 2000.

With bitcoin hitting an all time high of $68,000 in November, many cryptocurrency traders are wondering how they can accurately predict the start of the next cryptocurrency bear market. Traders want to sell a portion of their bitcoin at the top of the market and then buy back later when bitcoin falls.

So what is the trick for predicting the start of the next bear market? Well, one theory is that emerging markets stocks are a “risk” asset that act like a canary in a mine. When the canary chirps, the miners know they have to get out quickly or else a toxic gas will kill them. The same was the case in the 2008 crisis. Investors began to sell their riskiest assets first in order to get much needed liquidity. Emerging market stocks got sold off first as investors went into blue chip stocks and government bonds.

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