Bitcoin’s correlation with other assets has been a topic of interest among news sources. Two commonly compared assets are gold and tech stocks. Initially, the narrative of Bitcoin trading in tandem with tech stocks was prevalent in 2022 and early 2023. However, this correlation has broken down recently, leading to decreased news coverage.
A new narrative has emerged, focusing on Bitcoin’s correlation with gold. This correlation gained attention after the failures of Silvergate, Signature Bank, and Silicon Valley Bank in March, as both Bitcoin and gold rallied. The argument is that if Bitcoin is seen as a speculative asset, it may trade similarly to a tech stock. If Bitcoin is viewed as a safe-haven asset, a correlation with gold is more reasonable.
It’s important to note that correlations between assets can come and go. Just because two assets exhibit a correlation for a period of time doesn’t mean they will maintain that correlation in the long run. Examining correlations on a larger time scale may help determine if there is any merit to these narratives.
Taking a one-year view, Bitcoin has gained roughly 58% this year, rising from $16,600 to over $26,000. In the same timeframe, the NASDAQ has gained about 36%, from 11,000 to just shy of 15,000. Gold, on the other hand, has seen a modest gain of just over 7% year-to-date.
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According to the 90-day correlation coefficient, Bitcoin is currently positively correlated with gold (0.58) and negatively correlated with tech stocks (-0.65). Throughout most of this year, Bitcoin exhibited high correlations with both assets. At the beginning of the year, Bitcoin had a deeply negative correlation with gold, while the correlation with tech stocks was just below neutral.
So, which narrative holds? Is Bitcoin correlated with safe-haven assets or risk assets? Or does the presence of multiple correlations suggest that there is no correlation at all? These questions are best interpreted rhetorically, implying that there could be numerous assets that share similar patterns of price action on a one-year chart.
Looking at the percentage gains, gold has only risen by 9% while Bitcoin has seen an 18% increase and the NASDAQ has surged 30%. It would be tempting to draw significance from Bitcoin’s correlation with equities during specific periods. However, this year, the relationship between Bitcoin and equities remained consistent throughout the banking crisis in March. Since then, the correlation has disappeared as the NASDAQ reached year-to-date highs and Bitcoin mostly traded sideways.
On longer time scales, correlations become less likely due to the significant volatility and unique returns of Bitcoin. Over the past 14 years, Bitcoin has risen against the US dollar by tens of millions of percentage points, a feat unmatched by many other asset classes. Similarly, gold has seen a gain of almost 150% since early 2009. In comparison, the NASDAQ has risen over 1,000% since the same period, while Bitcoin’s returns reach a staggering 52,000,000% from July 2010 to present.
The key takeaways from this analysis are that an asset with such extreme returns might not be correlated with many other assets. Additionally, correlations between Bitcoin, gold, and tech stocks often don’t hold on timeframes longer than a year or two. Therefore, these correlations may not hold much significance.
Investors should approach correlations with caution and not rely heavily on them for investment strategies. Correlations can break at any moment, leading to unexpected outcomes. It is always advisable to conduct thorough research and analysis before making any investment decisions.
Disclaimer: This article does not provide investment advice or recommendations. Every investment and trading move carries risk, and readers should conduct their research before making any decisions. The views, thoughts, and opinions expressed in this article are the author’s alone and do not necessarily reflect those of Cointelegraph.
