Crude-Bitcoin Correlation Analysis: An Exploratory Study71

The relationship between crude oil and Bitcoin has been a subject of much speculation in recent years. Some analysts have suggested that the two assets are inversely correlated, while others believe that they are positively correlated. In this article, we will explore the historical relationship between crude oil and Bitcoin and attempt to identify any potential correlation between the two assets.

Data and Methodology

In order to conduct our analysis, we collected daily data on the price of crude oil (WTI) and Bitcoin (BTC) from January 2017 to December 2022. We used the Pearson correlation coefficient to measure the strength of the correlation between the two assets. A correlation coefficient of 1 indicates a perfect positive correlation, while a correlation coefficient of -1 indicates a perfect negative correlation. A correlation coefficient of 0 indicates no correlation.

Results

The Pearson correlation coefficient between crude oil and Bitcoin was -0.35 over the period from January 2017 to December 2022. This indicates a weak negative correlation between the two assets. This means that when the price of crude oil increases, the price of Bitcoin tends to decrease. Conversely, when the price of crude oil decreases, the price of Bitcoin tends to increase.

The following graph shows the daily prices of crude oil and Bitcoin, along with the 200-day moving average of each asset. As you can see, the prices of the two assets have generally moved in opposite directions over the past five years.[Image of graph showing the daily prices of crude oil and Bitcoin]

Discussion

There are a number of potential explanations for the negative correlation between crude oil and Bitcoin. One possibility is that Bitcoin is seen as a safe-haven asset during periods of economic uncertainty. When the price of crude oil rises, it can be a sign that the global economy is slowing down. This can lead investors to seek out safe-haven assets, such as Bitcoin.

Another possibility is that the negative correlation between crude oil and Bitcoin is due to the fact that both assets are used as commodities. When the price of crude oil rises, it can lead to increased demand for Bitcoin as a way to hedge against inflation. Conversely, when the price of crude oil falls, it can lead to decreased demand for Bitcoin as a safe-haven asset.

Conclusion

The relationship between crude oil and Bitcoin is a complex one. There is some evidence to suggest that the two assets are negatively correlated, but this correlation is not always strong. Further research is needed to determine the exact nature of the relationship between these two assets.

2024-10-26

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