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Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR Lead the Way

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR Lead the Way

2019-09-10 14:00:00
Christopher Vecchio, CFA, Senior 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 Chinese Yuan (via USDCNH) has the highest 5-day and 6-month correlations with bitcoin prices among emerging market FX at 0.95 and 0.73, respectively.
  • The Turkish Lira (via USDTRY) has the weakest link to bitcoin prices recently (5-day correlation is -0.47) while the Brazilian Real (via USDBRL) has had the weakest link longer-term (6-month correlation is -0.03).

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 maintain its steep losses from earlier this year.

Meanwhile, the Chinese Yuan (via USDCNH) has the highest 5-day and 6-month correlations with bitcoin prices among emerging market FX at 0.95 and 0.77, respectively. The Turkish Lira (via USDTRY) has the weakest link to bitcoin prices both recently (5-day correlation is -0.47) and longer-term (6-month correlation is 0.00).

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

bitcoin prices, bitcoin price today, usd to ars, usdars spot, usdars technical analysis, usdars chart, em fx, ars rate

Since the start of September, USDARS has lost -5.8% while bitcoin prices have risen by 6.7%. The current 5-day and 20-day correlations between USDARS and bitcoin prices are -0.57 and -0.65, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.27 and 0.30, respectively. In our last update on USDARS and bitcoin prices, the 3-month and 6-month correlations were -0.03 and 0.32.

Among the emerging market FX discussed in this report, USDARS has the most significant 20-day correlation with bitcoin prices.

bitcoin prices, bitcoin price today, usd to ars, usdars spot, usdars technical analysis, usdars chart, em fx, ars rate

Brazilian Real (USDBRL) vs Bitcoin (BTCUSD)Technical Analysis: Daily Chart (March to September 2019) (Chart 2)

bitcoin prices, bitcoin price today, usd to brl, usdbrl spot, usdbrl technical analysis, usdbrl chart, em fx, brl rate

Thus far in September, USDBRL has lost -1.9% while bitcoin prices have risen by 6.7%. The current 5-day and 20-day correlations between USDBRL and bitcoin prices are 0.75 and -0.45, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.15 and -0.03, respectively. In our last update on USDBRL and bitcoin prices, the 3-month and 6-month correlations were 0.00 and -0.04.

bitcoin prices, bitcoin price today, usd to brl, usdbrl spot, usdbrl technical analysis, usdbrl chart, em fx, brl rate

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

bitcoin prices, bitcoin price today, usd to cnh, usdcnh spot, usdcnh technical analysis, usdcnh chart, em fx, cnh rate

Since the start of September, USDCNH has lost -0.6% while bitcoin prices have risen by 6.7%. The current 5-day and 20-day correlations between USDCNH and bitcoin prices are 0.95 and -0.37, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.07 and 0.73, respectively. In our last update on USDCNH and bitcoin prices, the 3-month and 6-month correlations were 0.11 and 0.79.

Among the emerging market FX discussed in this report, USDCNH has the most significant 5-day and 6-month correlations with bitcoin prices.

bitcoin prices, bitcoin price today, usd to cnh, usdcnh spot, usdcnh technical analysis, usdcnh chart, em fx, cnh rate

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

bitcoin prices, bitcoin price today, usd to try, usdtry spot, usdtry technical analysis, usdtry chart, em fx, try rate

Thus far in September, USDTRY has lost -1.4% while bitcoin prices have risen by 6.7%. The current 5-day and 20-day correlations between USDTRY and bitcoin prices are -0.47 and -0.61, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.30 and -0.23, respectively.In our last update on USDTRY and bitcoin prices, the 3-month and 6-month correlations were -0.47 and -0.04.

Among the emerging market FX discussed in this report, USDTRY has the most significant 3-month correlation with bitcoin prices.

bitcoin prices, bitcoin price today, usd to try, usdtry spot, usdtry technical analysis, usdtry chart, em fx, try rate

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

bitcoin prices, bitcoin price today, usd to zar, usdzar spot, usdzar technical analysis, usdzar chart, em fx, zar rate

Since the start of September, USDZAR has lost -2.7% while bitcoin prices have risen by 6.7%. The current 5-day and 20-day correlations between USDZAR and bitcoin prices are 0.78 and -0.25, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.09 and 0.29, respectively. In our last update on USDZAR and bitcoin prices, the 3-month and 6-month correlations were -0.17 and 0.23.

bitcoin prices, bitcoin price today, usd to zar, usdzar spot, usdzar technical analysis, usdzar chart, em fx, zar rate

Why Does Cryptocurrency Tend to 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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