Since Satoshi wrote his plan in the bitcoin whitepaper in 2009, the invention has maintained a low correlation with stocks, including bonds, commodities, and stocks. This weak affiliation to traditional asset classes has made bitcoin a lucrative asset for investors looking to diversify their portfolios.

However, bitcoin’s correlation with stocks has steadily increased in recent months as the asset class sees increased adoption. More financial institutions and Wall Street giants are embracing Bitcoin, while companies like PayPal and Visa have added support for flagship crypto to their payment networks.

Could the entry of real currency into the mainstream by tying it closer to the legacy financial system that it is supposed to replace? Let’s take an in-depth look at the correlation between commodities and cryptocurrencies in recent years.

Bitcoin’s reputation as an uncorrelated asset

Bitcoin was invented to introduce a new counterculture to finance following the collapse of the banking system in 2008. Satoshi and the anarchist libertarians behind BTC set out to create a new deflationary form of digital money that would exclude governments and financial institutions that had eroded public trust.

Over the last decade or so, bitcoin has served its purpose as a hedging instrument during times of economic downturn, leading cryptocurrency advocates to revere it as’ digital gold. «

growing reputation of the world’s first cryptocurrency as a safe haven in times of financial crisis stems from its fixed supply which makes it resistant to inflation. currency is also completely decentralized, which means that central banks cannot manipulate its value.

A recent example of when BTC proved its status as an uncorrelated asset was in April and May 2019, when the token scaled new heights as stocks struggled. Crypto posted a strong bullish move, jumping 69%, while the S&P 500 fell more than 7% during that period.

More recently, in May 2021, trading experienced a boom in the digital asset market, while volumes for stocks and shares slowed as more institutional investors switched their attention to cryptocurrencies.

Activity picked up on crypto and derivatives exchanges, leading volumes to skyrocket to $ 1.7 trillion in May, up from $ 100 billion the previous month.

In stark contrast, US stocks fell 27%, showing that crypto markets often move in the opposite direction to equity markets. low correlation to stocks is crucial for crypto investors, as it provides them with numerous portfolio diversification benefits.

Bitcoin bond to stocks for the past three years

A report published earlier this year by VanEck confirmed that BTC behaved as an uncorrelated asset, moving in the opposite direction to bonds and indices such as the S&P 500 between 2013 and 2019.

However, a closer look at the link between BTC and the S&P 500 shows that the correlation patterns are taking a different tack. correlation between the world’s largest stock index and the world’s top crypto rose to an eight-year high in 2020.

S&P 500 has seen several declines over the past three years, the most notable being a 31.7% drop in February-March 2020. During this period, BTC performed similarly, dropping a whopping 51.6% in May during the historic Black Thursday Clash.

Interestingly, the forces linking BTC to equities strengthened between 2018 and 2020, with the three most significant declines in equity markets during that period coincided with major pullbacks in crypto markets.

VanEck data confirms that bitcoin’s correlation with the S&P 500 has moved back and forth over the past three years. coin was positively correlated in 2018 with a coefficient of 0.04. It then negatively correlated with the leading index in 2019 with a coefficient of -0.09 before finally moving in the same direction with stocks in 2020.

For an asset that is often touted as uncorrelated with most traditional investments, BTC has been moving in pretty much the same direction as the Nasdaq and S&P 500 over the past three years.

That said, the correlation to equities between 2018 and 2020 is still relatively weak compared to bitcoin’s relationship to gold, a rival safe-haven asset.

BTC price correlation with stocks in 2021

correlation made between BTC and the stock markets has been in decline since the beginning of the New Year, as BTC experienced a strong uptrend that took it to new highs in April.

In that period, the stock market also rebounded as the global economy rebounded from Covid-19 induced lockdowns. However, BTC roared higher at a much higher rate, doubling in value while the S&P 500 index was up just 8.5%.

two markets are starting to get out of sync, much to the delight of BTC hodlers who have insisted that bitcoin will eventually break its correlation with stocks and go its own independent path.

decoupling observed in recent months shows that the BTC market is maturing and is now less influenced by macroeconomic factors that negatively affect traditional stocks.

Proponents of cryptocurrencies strongly believe that bitcoins’ ebb correlation with stocks in recent months is proof that the asset has the potential to establish itself as a safe haven asset.

Bitcoin can affect the stock markets

BTC has been gradually decoupling from stocks of late, with the correlation falling below zero in March 2021 for the first time since January last year.

Per a recent report by Singapore-based bank DBS, bitcoin is coming off the margins of global finance and may have a significant effect on commodities. DBS study, which examined the changing relationship between cryptocurrencies and assets like bonds and stocks, found that the average correlation remains low at 0.20.

dwindling link to equities in 2021 indicates that BTC is preparing to become more digital gold than just another investment instrument within the conventional tax system.

Final thoughts

Stocks and gold have been in relatively bullish markets since the global economic crisis of May 2020. However, BTC has managed to outperform Both asset classes and currency continue to gain appeal among high-profile investors.

Wall Street giants continue to try to influence the cryptocurrency market to dissuade the asset class from parting ways with stocks. Still, the evidence from recent months shows that digital assets are separating from the traditional financial system.

Bitcoin appears to be well poised to establish itself as ‘digital gold’, providing investors with an alternative to the stock market often influenced by macroeconomic factors such as unemployment and hyperinflation.

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