How does bitcoin correlate with U.S. dollar, stocks, other asset classes?

Jan. 01, 2022 11:25 AM ETBitcoin USD (BTC-USD), SP500TLT, MSTR, GBTC, XAUUSD:CUR, OBTC, BITOBy: Max Gottlich, SA News Editor184 Comments

Investment And Finance Concept - Bitcoin Symbol Sitting On Yellow Financial Graph Background

MicroStockHub/E+ via Getty Images

  • As more investors delve into cryptocurrencies and decentralized finance, the largest digital token, bitcoin (BTC-USD), appears to be evolving as a beast of its own as its correlation with other risk assets seem to be relatively low, though arbitrarily high from time to time.
  • Bitcoin (BTC-USD), with an $897.73B market cap, looks to close out 2021 with a ~75% gain in price, compared with the S&P 500 index (SP500) +30%, Gold (XAUUSD:CUR) -3.5%, the trade-weighted U.S. dollar +6.1%, the long bond (NASDAQ:TLT) -5.8% and consumer price inflation +6.9% Y/Y in November.
  • With regards to E-Mini S&P 500 futures, the "correlation between #bitcoin and $ES_F over the past 4 months has been 0.4 and highly statistically significant," Mark Dow, global macro trader wrote in a tweet on Dec. 27.
  • The "rolling 120d correlation between S&P 500 and #Bitcoin remains in positive territory and continues to pick up," implying BTC acts as speculative risk asset at times, Charles Schwab Chief Investment Strategist Liz Ann Sonders wrote in a tweet on Dec. 20.
  • Still, this week, the S&P (SP500) continued marking new record highs, while bitcoin (BTC-USD) continues to drop from its all-time high of $69.4K per token in mid-November, now changing hands below $47.8K. BTC is off 7.4% in the past five sessions, while the S&P gains 1.4%.
  • Of course, there are individual bitcoin-related stocks that tend to act as a proxy for BTC price action, and therefore volatility. Some of these names include: Grayscale Bitcoin Trust (OTC:GBTC), MicroStrategy (NASDAQ:MSTR), Osprey Bitcoin Trust (OTCPK:OBTC) and ProShares Bitcoin Strategy ETF (NYSEARCA:BITO). Meanwhile, "HODLers counting on institutional demand to drive #Bitcoin prices higher should be very concerned about GBTC's near 20% discount to NAV," Euro Pacific Capital Chief Economist and Global Strategist Peter Schiff, who is known to be a crypto skeptic, wrote in a tweet earlier this week. "Such demand, if it even exists, will be diverted to #GBTC instead of Bitcoin. Once the biggest Bitcoin booster, GBTC is now the biggest drag."
  • Following the arrival of the first Covid-19 vaccine in the beginning of November 2020, BTC positively correlated with the S&P, emerging market securities and commodities. But following BTC's surge in price six months later, its momentum plateaued in 2021, Bloomberg highlights.
  • JPMorgan Asset Management Global Market Strategist Gabriela Santos notes that crypto has a "super-unstable" correlation with other assets, saying it's hard to imagine what returns will look like given its high volatility, she said on Seeking Alpha's Alpha Trader podcast. "We're having a really hard time including crypto assets in a portfolio," she added.
  • While bitcoin (BTC-USD) had a strong year in terms of price action and growing retail/institutional acceptance, its global crypto market cap of $2.24T is still inferior when compared with Gold (~$10T) and U.S. stocks (~$50T).
  • The common conception behind BTC is that it can act as an inflation hedge. However, BTC is down more than 30% from its mid-November record high, while CPI marches higher to a near 40-year high. On the other hand, Gold (XAUUSD:CUR), which performs well in times of monetary regime shifts, gains about 6% within the same time frame.
  • Looking forward, see why S&P Global thinks cryptos will see further adoption growth and price volatility in 2022.

Recommended For You

Comments (184)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.