Morning Edition 8.6.2019

Yesterday Bitcoin traded up some 4.4% even as global equity markets were down 4% after the US labeled China as a currency manipulator and China confirmed it will not be buying any US agricultural products going forward.  Equities traded down on the prospect of lower profits. Bitcoin and other digital assets seemed to have traded up as a flight to non-correlated assets. 

Non-correlated assets are those that trade up or down even as global stocks and bonds trade according to their own traditional patterns.  Yesterday, on August 5, global bonds prices and digital currencies traded up as the threat of reduced profits reared its ugly head.  It is normal for bond prices to go up in such circumstances as global investors seek the safety of sure interest payments from stable governments such as Germany and the US and Japan.  And even though yesterday digital currencies such as Bitcoin went up alongside increases in prices for global bonds (and thus were correlated yesterday), bond prices will be subject to the threat of inflation and future supply caused by future budget deficits.  Bitcoin and other digital currencies are not subject to such fiscal stimuli — reducing their correlation to bond prices. 

Yesterday, the global markets were dramatically reminded of the low correlation — and sometimes negative correlation — between digital currencies and global equity prices. 

We at iTrust do not necessarily advocate for any particular digital asset in investors’ portfolios but we do note the rationale of owning multiple non-correlated assets in a single portfolio. Today, as bond and equity prices are “settling down” after such high volatility yesterday, so is the price of Bitcoin (ticker BTC).  BTC is currently trading at $11,734, down about 0.17% from yesterday.

Tim Shaler is Chief Economist of iTrust Capital.  He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.

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