Major international currencies are quoted to the US dollar, thus making them quite dependable. For the most part, foreign currencies do not represent any significant value to each other, but the exchange is essential for open trade. And that’s why significant news are instantly reflected on quotes. A vivid example of that is the referendum on Brexit aftermath.
This is how GBPUSD, EURUSD and USDCHF reacted.
Simultaneous movement. And it’s not uncommon, since currencies almost always form the same trend in response to ‘big’ news.
And see what happened with Bitcoin price in light of the Brexit announcement.
The price was growing the day before the event. It’s okay to assume these circumstances turn some investors to look for other investing alternatives.
Wanna see how prices responded to during the day to breaking news?
June 27, Bank of England Governor made his statement on Brexit.
July 3, Eurozone unemployment data was reported.
July 6, the balance of trade on all the trading operations in the US was published.
You can clearly see that Bitcoin chooses its own direction despite the news and world currencies price trends.
A good tool to diversify your risks would be the Pearson product-moment correlation coefficient or PPC. The formula determines the correlation between assets’ prices. It helps to reduce risks and gives the most accurate picture.
Here are correlations between the GBPUSD, EURUSD and USDCHF quotes.
For the last couple of years, the prices correlated closely with an approximate coefficient of 0.9. This goes for almost all currency pairs, except franc.
Bitcoin and world currency correlation
Now let’s use PPC for Bitcoin and fiat money.
As seen from the graph, the coefficient has been indicating little dependence between BTC and EUR, GBP, CHF. This year’s events have formed negative dependence between BTC price and GBPUSD.
So far there is no indication that fiat money influence Bitcoin price after all. Bitcoin has been developing on its own, disregarding international news and major currencies movement.