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Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

2019-08-26 20:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Bitcoin Price & Emerging Markets FX Correlations Overview

  • Per the Emerging Markets Crisis Monitor, external debt-to-GDP ratios, implied FX volatility, and bond risk premia are some of the key factors that traders need to keep an eye on when looking for potential trade opportunities in EM FX.
  • The Argentinian Peso – with an external debt-to-GDP over 50%, a debt-to-GDP ratio over 100%, sharply elevated implied FX volatility, and relatively elevated credit default odds – continues to sustain significant losses from earlier this year.
  • The South African Rand has the highest 5-day correlation with bitcoin prices among emerging market FX, but the Chinese Yuan remains the most highly correlated with bitcoin prices over the past six months.

Looking for a guide on how to analyze Emerging Market Currencies (EM FX)? Read the Emerging Markets Crisis Monitor.

Per the Emerging Markets Crisis Monitor, external debt-to-GDP ratios, implied FX volatility, and bond risk premia are some of the key factors that traders need to keep an eye on when looking for potential trade opportunities in EM FX.

The Argentinian Peso – with an external debt-to-GDP over 50%, a debt-to-GDP ratio over 100%, sharply elevated implied FX volatility, and relatively elevated credit default odds – continues to sustain significant losses from earlier this year.

The South African Rand has the highest 5-day correlation with bitcoin prices among emerging market FX, but the Chinese Yuan remains the most highly correlated with bitcoin prices over the past six months.

Argentinian Peso (USDARS) vs Bitcoin (BTCUSD)Technical Analysis: DailyChart (February to August 2019) (Chart 1)

bitcoin price, usdars, usd to ars, emerging market fx

Since the start of August, USDARS has gained 20.6% while bitcoin prices have risen by 2.3%. The current 5-day and 20-day correlations between USDARS and bitcoin prices are -0.67 and -0.21, respectively. On longer-term horizons, the 3-month and 6-month correlations are 0.00 and 0.40, respectively.

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Brazilian Real (USDBRL) vs Bitcoin (BTCUSD)Technical Analysis: DailyChart (February to August 2019) (Chart 2)

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Since the start of August, USDBRL has gained 8.1% while bitcoin prices have risen by 2.3%. The current 5-day and 20-day correlations between USDBRL and bitcoin prices are 0.01 and 0.17, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.09 and 0.08, respectively.

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Chinese Yuan (USDCNH) vs Bitcoin (BTCUSD)Technical Analysis: Daily (February to August 2019) (Chart 3)

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Since the start of August, USDCNH has gained 3.6% while bitcoin prices have risen by 2.3%. The current 5-day and 20-day correlations between USDCNH and bitcoin prices are -0.12 and 0.55, respectively. On longer-term horizons, the 3-month and 6-month correlations are 0.15 and 0.83, respectively. Among the emerging market FX discussed in this report, USDCNH has the most significant 20-day and 6-month correlations with bitcoin prices.

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Turkish Lira (USDTRY) vs Bitcoin (BTCUSD)Technical Analysis: DailyChart (February to August 2019) (Chart 4)

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Since the start of August, USDTRY has gained 4.2% while bitcoin prices have risen by 2.3%. The current 5-day and 20-day correlations between USDTRY and bitcoin prices are -0.17 and -0.51, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.17 and 0.28, respectively.Among the emerging market FX discussed in this report, USDTRY has the most significant 3-month correlation with bitcoin prices.

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

South African Rand (USDZAR) vs Bitcoin (BTCUSD)Technical Analysis: DailyChart (February to August 2019) (Chart 5)

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Since the start of August, USDZAR has gained 6.3% while bitcoin prices have risen by 2.3%. The current 5-day and 20-day correlations between USDZAR and bitcoin prices are 0.91 and 0.38, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.17 and 0.28, respectively. Among the emerging market FX discussed in this report, USDZAR has the most significant 5-day correlation with bitcoin prices.

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR in Control

Why Does Crypto Benefit When EM FX Suffers?

A quick recap: bitcoin and cryptocurrencies are not “safe haven currencies” per se, as they lack key features of being a currency in the first place, main of which is a ‘stable store of value.’ But if you’re not using bitcoin and other cryptocurrencies as ‘stores of value,’ then, given the electronic nature of the globalized economy in 2019, the cryptocurrency market, coins and tokens can all be used as intermediaries to move capital beyond of the reach of governmental agencies.

Why would a market participant want to move capital around without government interference? If capital controls are in place, then it may be impossible to render the production of goods or services at fair value, especially in an emerging market economy. It may not be due to domestic conditions alone, either fiscally (via elections) or monetarily (via central banking independence). Instead, it could be due to external factors, like economic fallout from an international trade dispute – say, the US-China trade war.

Bitcoin Price and Emerging Market FX Relationship Conclusions

What’s bad for EM FX –like the Chinese Yuan and South African Rand – is good for cryptocurrencies – like bitcoin – in general. It remains the case that, if bitcoin prices and the cryptocurrency market are going to continue their 2019 rally, the best bet may be for the US-China trade war to deepen further.

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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