Friday, April 23, 2021

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Closer Relationship Between Bitcoin and Stock Price

Bitcoin, a cryptocurrency (virtual currency), is shifting from assets that have no correlation to the stock market to those that are more closely related, analysts at US bank giant JPMorgan Chase invest As mentioned in the home memo. This memo went live on June 11th.

“In the last couple of years, correlations have been near zero, but some have seen a sharp rise in equities over the last few months (stocks) and some show the opposite (US dollars, gold). “Said JPMorgan’s strategist team, headed by Joshua Younger.

Fixed income analysts noted that Bitcoin outperformed traditional assets on a volatility adjusted basis in March. The memo noted that Bitcoin’s liquidity on major exchanges was more resilient than traditional assets such as stocks, gold, Treasuries and foreign exchange.

Has been above the average for the past year, while traditional asset class liquidity has not yet recovered.”

Market Depth: The concept of market liquidity. Also called “market depth”, it indicates whether there are enough buy and sell orders in the market.

Bitcoin is not a safe asset

From March 2 to 23, the S&P 500 stock index fell 29% as concerns over the new coronavirus increased.
JPMorgan analysts believe that price fluctuations were strong during this period, but it was the first stress test for a crypto asset and it passed. The memo states that the valuation of crypto assets did not deviate significantly from its intrinsic value throughout the month of March, and little cash movement was seen.

He noted that while crypto assets showed greater resilience than traditional assets during this period, some views that bitcoin is a safe asset cannot be met at all. There is little evidence that Bitcoin and other crypto assets acted as safe assets (i.e. digital gold). Rather, their value appears to be highly correlated with risky assets like stocks.”

JPMorgan analysts have concluded that Bitcoin is likely to continue to exist, but it will continue to be a speculative means, not a way to exchange or store value.

The “virtual currency” represented by Bitcoin is drawing worldwide attention. However, there remain technical and social issues to be solved. It is difficult to say that it has been widely evaluated positively because it can be used as a means of illegal remittance and partly due to problems such as bankruptcy of exchanges. On the other hand, the technology related to virtual currencies has been steadily progressing step by step, and it is expected that the legal system will be further improved in the future, so there is a possibility that it will become a major trend in the future.

Steady Bitcoin Three tailwinds for virtual currency

The crypto asset (virtual currency) market is strong. Bitcoin (BTC) prices dropped to a level below $5,000 in mid-March, but then bounced back. In early May, it temporarily recovered to the level of 10,000 dollars.
As with equities, there is an aspect that global monetary easing supported the market. However, it cannot be overlooked that there is a tailwind unique to virtual currencies in terms of supply and demand.

If the number of participants in the maintenance work of the distributed database is limited and the method of consensus building is set to a method that does not take much time, a considerable speedup can be realized. (In contrast to the open type of Bitcoin, it is called the closed type or private type). In addition, improvements to Bitcoin itself are ongoing, and new features such as payment channels will enable faster transactions.

Relationship between block and individual transaction

From the name of blockchain, I think that it has an image that data is somehow blocked, but here I will explain the mechanism. Visit Libra Maximizer for more details.

First, in a centrally managed database, as each transfer transaction is made, each transaction is recorded directly in the database.

On the other hand, in blockchain, instead of writing each transaction directly to the database, several individual transactions are made into one set and recorded in the database for each set. This set of multiple transactions is called a “block”. And the individual transactions inside are called “transactions”.

The reason why blockchain doesn’t write individual transactions directly to the database is because blockchain adopts distributed database.

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