Transcript:
Tom Vaughan:
Hello, everybody, welcome to Friday. The S&P 500 was up .08% today, most of the indexes were kind of flat today, although a lot of them were up a lot more and right at the end, we saw some sell off. And the thing that interests me is that we also saw sell off in the Bitcoin and cryptocurrencies which are down roughly 10% today. And so, is there a relationship between these cryptocurrencies and Bitcoin, which are not in the stock market at all, and the stock market itself? Well, I did read a really interesting study this week, where they did some research and looked at how Bitcoin was moving and how the S&P 500 was moving, they did find a positive correlation. And so they have a mathematical formula for for correlation. And basically, a 1.0 correlation means it moves up and down exactly the same. Negative 1.0 means they go exactly the opposite direction, right, as far as that goes. And so this study said that Bitcoin had a .20 correlation with the S&P 500. And so that’s not that high, per se.
But it is positive, which I thought was kind of interesting. And they also said that in extreme situations where the cryptocurrency made really big moves, then it was higher, it got to a .26 on the correlation. So again, I think that’s kind of fascinating. Now, this is something we’re still learning about, and we’re still trying to figure out how this is working.s the stock market, you know, moving and then cryptocurrency is being affected? Or is it the vice versa? You know, are cryptocurrencies moving so far what I’ve seen kind of watching it kind of day by day here, I would say the cryptocurrency is having a bit more impact on the stock market as a whole, and vice versa. And one of the things I think could be happening here is that with cryptocurrency, you’re allowed to use a lot of leverage, if you so desire. If you if you want to buy a stock, the SEC limits that to 50% margin or leverage.
So if I want to buy $100 worth of stock, I would only be able to, I can pay $50 and get $100. But you can go all the way to 100-1 on cryptocurrency, because it’s not a regulated market. So theoretically, but $1 in and buy $100 worth of Bitcoin. And so obviously, what happens, then if it starts to fall, that $1 that you have could disappear, and then there’s a margin call, and people are having to gather money to pay off that margin call. And sometimes that means selling, some of the stocks that that we might own. So this is something to watch for, I think it’s going to be kind of interesting, how much impact it has one way or another, we’re still unfolding this, it’s becoming very popular, there’s a lot of different, 5900 and some odd different cryptocurrencies out there, which, there’s only 3800 stocks on the US stock exchange. So it’s kind of incredible how many options there are. So we’ll see how this plays out.
But overall, it’s just something to watch for, it’s, there’s always these outside influences, things that are happening, and obviously, the virus was a huge one, but, situation in a foreign country that can happen, all these things that are always happening. It’s why the portfolio design is so important to try to mitigate some of these, unknown circumstances that can come along, and how much you have in bonds versus how much you have in stocks, and then what types of stocks and what types of bonds, you have to kind of create that, scenario that works for you. So that, the ups and downs are there as far as that goes. So, just something I thought I’d report on. I thought it was very interesting as far as that goes, but something I will continue to watch, something we’ll continue to talk about. So anyway, I had a great time today at Go Live with Tom. Great questions. Really, really fun sessions, actually. So look forward to talking to you on Tuesday, everybody, have a great three day weekend, and I’ll see you then. Thank you.