A look to Bitcoin’s correlations with commodities, equities and market indices.
Drawing parallels between Bitcoin and traditional asset classes is part of the regular dialog in financial circles. Is Bitcoin a better inflation hedge than gold? What’s the relationship between Bitcoin and crypto exposed equities? Does Bitcoin trends in opposite directions to financial stocks? Turn on your favorite finance show and you are likely to encounter questions like these.
I personally think correlations between Bitcoin and traditional financial instruments are a statistically fragile metric to obsess about but there are plenty of people that disagree with that opinion. Now if you really like correlation analysis, there is nothing like a big rally or crash to put that theory to test 😉 The recent Bitcoin rally has shown some crazy correlation behaviors with commodities, equities and other financial instruments. Let’s look at some examples:
1) Bitcoin has broken correlation with gold but has a higher correlation with silver and platinum.
Silver? Really? In the last few weeks, Bitcoin correlation with gold has dropped below 0.5 while the current correlation with silver trends around 0.8%. Now the highest correlation is not with silver but with platinum.
2) Bitcoin is showing negatively correlated with the VIX index and below average correlated with most market indices.
Don’t even bother to look for correlations between Bitcoin and market indices in the last few days. They don’t exist. However, in an interesting patter, Bitcoin is showing very strong negatively correlation with the VIX volatility index.
3) Some crypto exposed equities are negatively correlated with Bitcoin
PayPal, Voyager, Square, Bakkt are showing negative correlations with Bitcoin? What??? So much for buying those equities as a proxy exposure to Bitcoin. Some other like Coinbase or Microstrategy still trade highly correlated with Bitcoin.
4) Bitcoin is trading negatively correlated with Asian market indices
In recent weeks, Bitcoin has been trading increasingly negatively correlated with Asian market indices such as the Shanghai Composite or the Nikkei 225. Not so much surprise here given the recent negative sentiment in China towards Bitcoin. However, the magnitude of the negative correlation still impresses.
I think is safe to say that in the last few weeks Bitcoin has been behaving like a non-correlated asset. At least for now. Like everything related to correlations, it will change 😊 .