It is traditionally accepted that bitcoin (BTC) has a relationship with the stock market in terms of movement. If this link remains, a crypto expert reveals that it is no longer as strong as many think. He particularly notes that bitcoin's correlation with the S&P 500 is now negative.
The weakening of the bitcoin-shares link?
In a recent social media intervention, Jurrien Timmer, an executive at Fidelity, shared an interesting point of view regarding bitcoin. The flagship crypto now presents “a predominant negative correlation” with the S&P 500, a benchmark stock index.
In other words, the two assets known to follow similar trajectories together tend to move in opposite directions most of the time. So when one increases, the other tends to decrease, and vice versa.
This revelation has a special flavor for investors, especially those adhering to the traditional 60/40 portfolio allocation strategy. She points out that bitcoin's correlation with stocks has decreased significantly, as has its annualized volatility.
This development also speaks to bitcoin's potential as a more attractive option for portfolio diversification. Although it must be recognized that it introduces complexities for crypto traders. Because bitcoin's price movements may not align with those of stocks based on macroeconomic indicators.
A process that began in 2022
It must be said that this change highlighted in the correlation between bitcoin and stocks does not date from today. Experts place the start at 2022, a year marked by efforts by the American Federal Reserve to fight inflation through interest rate increases.
For example, in March 2022, the correlation between bitcoin and the S&P 500 peaked at nearly 0.50, reaching its highest level since 2020. This development proved difficult for bitcoin supporters, who viewed as a way to diversify one's portfolio, capable of operating independently of traditional asset classes.
Furthermore, the idea that bitcoin can serve as “hedge against inflation” aroused skepticism. The reason is that the flagship crypto behaved more like a conventional risk asset.
However, the dynamics between the two assets changed dimension in 2023. In March of that year, research firm K33 observed a decline in the correlation. A situation that has once again positioned bitcoin as an attractive investment choice for its potential to function as a relevant means of diversifying one's portfolio. One expert has predicted a potential reestablishment of the correlation between bitcoin price and stocks. Not least thanks to the introduction of several spot Bitcoin ETFs earlier in the year.
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