New Data Comparing Bitcoin Price and EM FX Might Affect Your Trading Strategy

  • 14.11.2019

Financial analysts have taken an interest in finding correlations between the price of Bitcoin and the performance of foreign currencies in an attempt to better understand and predict behavior in what remains a fairly volatile cryptocurrency market. With Bitcoin exploding onto the scene in 2010, seeing massive gains through to 2017 but dropping significantly in 2018, analysts are keen to explore new ways of predicting how it may perform in the upcoming decade.

Why These Five Currencies Were Studied

The data we are about to explore includes analyzes of the movements of the Rand (South Africa), Lira (Turkey), Ruble (Russia), Yuan (China) and Rupee (India). These five currencies were selected for the research as their corresponding countries are more likely to face challenges based on three important shared factors:

These currencies all have direct investments from beyond their own borders

Each run a large amount of outside international financing through their current accounts

Their economies are focused on export growth, subsequently also containing relatively high external debt to gross domestic product

What's more, these five currencies' volatility, inflation and bond risk make them somewhat soft targets for poorer performance when compared to other emerging economies.

In the short term, the 5-day correlation indicates a slightly positive comparison between the price of BTC and the performance of the South African Rand. When looking at a wider date range, it becomes evident that the Rand has one of the most prominent correlations with the price of Bitcoin; over the 20-day period it stands at -0.78, which is the largest deficit out of all five sample currencies.

As the third quarter of 2019 swung around, the data shows a significant discrepancy to be noted, namely that as Bitcoin prices fell by over 12%, the South African Rand improved by 1%. Over a 6-month period, the research by DailyFX indicates that the correlation stabilizes somewhat, to 0.17.

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