24 Jan 2022
Bitcoin’s correlation with the stock market is increasingBitcoin has become highly correlated with the stock market. Is the digital gold narrative starting to crack?
Many are betting that bitcoin will protect their portfolios against market uncertainty and inflation. For an asset to serve as such a safe haven, it should be uncorrelated with the rest of the financial market. Between 2014 and 2020, bitcoin's 360-day correlation with the S&P 500 hovered around 0.Bitcoin's correlation with the rest of the financial market started to increase at the onset of the COVID-19 pandemic. The bitcoin price plummeted almost 60% simultaneously as the rest of the financial market also panicked.Nevertheless, bitcoin's long-term correlation with the stock market was still relatively low even after this event- a catalyst for the massive increase in institutional interest we saw in 2020. Then, many prominent investors purchased bitcoin, citing the asset's potential as a safe haven asset. The digital gold narrative was born.As the digital gold narrative drove in institutional money, bitcoin's correlation with the stock market increased. Bitcoin's 360-day correlation with the S&P 500 has consistently laid above 0.2 since the summer of 2020.With bitcoin's correlation with the broader financial market sitting at such highs, will bitcoin's digital gold narrative crack? Or will it see a resurgence as investors increasingly feel the need to protect their portfolios against inflation?