The correlation between Bitcoin & S&P500 gets a lot of attention, & rightfully so It’s a big reason why $BTC is so attractive to hold in a portfolio. This is large because $BTC has been UNcorrelated to other asset classes for its entirety.

What is correlation?
The strength of a linear relationship between two variables. For our situation, the relationship between the returns of
$BTC vs stocks.
Bitcoin has been UNcorrelated almost it’s entire life. This makes sense for a few reasons:
•Different factors driving the valuation of a company vs a new form of money
•Fewer people/institutions own Bitcoin relative to how many own stocks
•The risks associated are different
 

Correlation is measured with a coefficient between 1 & -1 which signal a strong positive relationship or a strong negative relationship.
Here’s how
$BTC stacks up vs every asset for the last 3 years:
• 0 correlation to S&P
• .08 avg correlation to all other asset classes
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Another way to visualize how Bitcoin’s correlation has oscillated from little-to-no correlation with stocks is to look at how it has evolved over time. This chart shows 2014-present. Not a negative correlation. Not a positive correlation. Movement from little-to-no correlation the entire time.

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Now, if you zoom in to this year, the correlation is slightly higher between the two. The peak was around March 12th as all “risky” assets sold off together. (likely reason: In a crisis, everything sells off together as the driving force behind that decision is dominated by fear)

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Now you’re probably scratching your head. Are they uncorrelated like they’ve been for the majority 5+ years?? Or are they correlated because the chart for both goes up & to the right??

 

This is where a little nuance enters the thread. BTC & stocks have shown a higher correlation recently, at times trading tick-by-tick with each other. The way to approach this is summarized well by Alameda Trabucco which you can find here.

TLDR:
•Bitcoin & S&P have been largely uncorrelated for years
•The correlation moves from slightly positive/negative but mostly near zero
•During panics it will be highly correlated (like everything else)
•Correlation has been at all-time highs lately, which is not the norm

 

 

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