The financial media often draw attention to Bitcoin’s correlation with big technology. The phrase “Bitcoin is trading like a tech stock” is a common rhetoric alongside BTC’s sharp inverse relationship to the US dollar. But are these correlations stable and can they be useful for predicting future price movements? So, do some altcoin projects follow Bitcoin as well? Let’s take a closer look at a few reports that analyze the relationship between Bitcoin and various types of assets.
Historical correlations of Bitcoin (BTC) vary according to time zones
A report published by the Multidisciplinary Institute for Digital Publishing in October 2022 reached some important conclusions regarding Bitcoin’s correlations with traditional financial assets.
- The extreme volatility of the Bitcoin market means that long-term correlations are stronger than short-term correlations;
- “The positive link between BTC and risk assets increases during extreme shocks” such as COVID-19;
- BTC may have a positive correlation with risk assets and a negative correlation with the US dollar;
- Bitcoin can act as a hedge against the US dollar.
While some of these points can be covered by more recent price data from the last 9 to 10 months, such as a large drop in volatility, insight can still be gained by examining them. In addition, other researchers have delved deeper into the relationship of certain assets to Bitcoin over certain time periods.
Crypto-specific stocks
Few crypto-related stocks have more correlations with Bitcoin than any other asset in the market. The 90-day correlation coefficient for BTC/MSTR, BTC/COIN, and BTC/RIOT has been close to 1 for the past few months. The symbols “BTC/xxxx” show the correlation coefficient measured against Bitcoin for each asset. The coefficient for the MSTR has not fallen below 0.68 since September 2022. While the coefficient for RIOT decreased to about 0.75 in June 2023, COIN remained close to 0 for a while in May and June. All of these stocks have outperformed Bitcoin so far this year, while also showing more volatility. Investors may be using these assets as proxies for BTC that cannot be purchased through a brokerage account.
One reason these three stocks are so closely related to Bitcoin has to do with the balance sheets of the companies involved. All of them have substantial Bitcoin assets. As the table below shows, MSTR is the company with the most assets among publicly traded companies with 152,333 Bitcoins. COIN ranks 4th with 10,766 Bitcoins and RIOT 8th with 7,094 Bitcoins.
Correlation between precious metals and Bitcoin
When it comes to correlations with commodities and precious metals, silver, in particular, surpasses gold in reflecting Bitcoin’s price movements since 2019. “How do cryptocurrencies correlate with traditional asset classes?” by Jordan Doyle and Urav Soni of the CFA Institute in November 2022. Its report, titled, sheds light on the assets with which Bitcoin is most correlated. According to the report, silver was the commodity most closely associated with Bitcoin from October 2019 to October 2022, with a correlation coefficient of 0.26. By comparison, gold’s correlation was only 0.15, perhaps due to silver’s higher volatility.
Passive and active stock funds and bonds
When talking about stocks as a whole and their correlation with Bitcoin, looking at an index or ETF will be the most common way to compare. This provides an overall overview of the asset class rather than focusing on a specific stock that may have any number of factors affecting it. As might be expected, growth funds tend to be more correlated with cryptocurrencies, possibly due to their more speculative nature. In other words, the crypto markets as a whole have a “weak sensitivity to interest rate dynamics” that is at least partially responsible for the widespread decline in equities over 2022.
All correlations can change in an instant due to Bitcoin’s huge price fluctuations. Still, the data used here provides an accurate picture of the assets most closely associated with Bitcoin in the recent past. While crypto-specific stocks are likely to continue to have a strong correlation due to Bitcoin holdings, the correlation with commodities and equity funds could change direction quickly in the future.
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