Is Bitcoin Correlated To The Stock Market?

Bear Market Resilience

Bitcoin remained resilient during the recent bear market, leading some commentators to conclude it is finally decoupling from stock market trends.

That said, in periods of dislocation, particularly liquidations of leverage, all correlations (stocks, bonds, currencies, commodities, everything including BTC) go to one.

Stocks and bonds generate their return from economic activity, inflation, GDP growth, etc.

That is not the case with Bitcoin. Prices are determined by the technology itself, adoption, and changes in the level of fiat currencies in which bitcoin is priced.

The decline in purchasing power of fiat currencies is a key element.

You can buy less stuff with $100 than you could just a year ago. To have the same purchasing power of $100 in the Great Financial Crisis of 2008, you would need approximately $507 in 2024.

However, one bitcoin is still one bitcoin. It’s been the same for the last 16 years and will be the same for the next 16 years. One ounce of gold is still one ounce, which won’t change.

What has changed is the number of pieces of paper (fiat currency) that you have to exchange for that physical asset.

During the recent bear market, BTC reached all-time highs in places like Turkey and Argentina because these countries devalue their currencies at a faster rate than the U.S.

Should we be surprised that BTC keeps making all-time highs when 80% of all the dollars that have existed (over 249 years) were printed in the last 5 years alone?

So, is Bitcoin starting to behave more like gold?

Money is an asset that exists in the absence of a liability. Gold has been money for more than 5,000 years. That is different from a currency backed by government debt.

Bitcoin has more in common with gold than it does with stocks.

Gold is a flight to safety. When stocks are in decline, and, more recently, when stocks, bonds, and the dollar are in decline, investors tend to add more gold to their portfolios.

Historically, bitcoin has behaved like a risk asset. BTC will sometimes go up when the stock market is going up. It will outperform the stock market in bull markets and bear markets. It is not a simple hedge, and that will likely be the case in the near future.

So, is Bitcoin correlated with the stock market?

The correlation (on a scale of -1 to 1) between Bitcoin and the S&P 500 over the last 16 years is 0.16; in the last 5 years, it has been closer to 0.7 (or 70%).

Bitcoin is not a flight to safety. However, its inclusion in a portfolio can add value because it’s non-correlated.

For now, its price remains more correlated to price movements in equities than that of gold.

Bitcoin is what you want it to be. If you want it to be a risk asset, sensitive to liquidity, in your portfolio then it is a risk asset. If you want it to be a longer-term safe haven it’s that also. It depends on your time horizon.