I changed rolling correlation period from 21 days to 7 days for bitcoin here. The original article showed the bitcoin’s rolling 21 days correlation with other financial assets and concluded that “Bitcoin has recently become increasingly correlated with other global financial assets”. The above mentioned figure shows that bitcoin and ether were high-correlated in rolling 7 days period but bitcoin and other financial assets were sometimes negatively correlated when those prices plunged partilarly. The correlation between bitcoin and ether kept high always as assumed. The next figure fig5. shows the significant correlation between bitcoin and the traditional asset classes such as stock, real estate and Nikkei225, on the other hand we could glimpse low (or neutral) correlations of ether over other financial assets. This result implies that ether or other crypto currencies except bitcoin would be more adequate for hedge asset over the traditional financial assets. Because bitcoin might take a correlated path with other financial assets from this perspective.
Harry Markowitz, the father of the modern portfolio theory, postulated that the most important aspect of risk to consider is an asset contribution to the overall risk of the portfolio, rather than the risk of the asset in isolation. Uncorrelated asset is the key when we build a portfolio to reduce volatility and improve risk-adjusted returns. When we pursue an optimal risk-adjusted returns in the market, we would not choose bitcoin which has been high-correlated with the traditional financial assets. Including other crypto currencies and even gold there seems no true financial safe haven that is robust against financial shocks reverberating through other financial markets. However as we saw the correlations of ether with the financial assets, other crypto currencies might be relatively uncorrelated and could be thought as hedge asset more than bitcoin for either financial panic or inflation case.
The original article confirmed also the correlation between the crypto currency index (HODL30 index) and American stocks was significantly lower than the correlation between bitcoin and U.S. stocks. I assume that a correlation between crypto currency index excluding bitcoin and major coins and the traditional assets would be much less correlated or rathar negatively correlated from that result’s saying. Lastly even the correlations between gold and other assets have marked high sometimes. So I’d say there are two asset groups from this angle, the one that falls under traditional house including gold and the one that falls under crypto house including bitcoin, ether, other crypto currencies. Because cryptocurrencies that employ decentralization i.e. Byzantine Fault Tolerance are less vulerable to turmoil and chaos by avoiding central party risk in nature. You don’t need to worry about the company’s declaration bankruptcy or the country’s default, it exists there witout any central interventions as long as underlying machines are working and mining coins.