Bitcoin and S&P ‘Largely Uncorrelated’ & ‘Not Uncorrelated’ – Analysts
A look at a larger picture shows that bitcoin (BTC) and stocks have been uncorrelated for most of the coin’s existence, says an analyst, while another one adds that BTC is “not an uncorrelated asset.” It’s a matter of nuance, it seems.
The question of whether or not bitcoin is correlated with the stock market or any other traditional financial asset is a much-discussed topic in the cryptoverse. Many argue that the question remains important because it determines whether or not bitcoin should be held as part of a traditional investment portfolio – as is often argued by bitcoin proponents who deem it an uncorrelated asset.
PlanB, the pseudonymous creator of bitcoin stock-to-flow (S2F) model, argues that Bitcoin and stocks have been uncorrelated for a decade. However, the real tests come in the times of stress and crises, such as a financial crisis, or the Covid-19 pandemic, and the data he now presented imply that BTC is “not an uncorrelated asset.”
“I guess with Corona we have had one such test: BTC seems not uncorrelated. In fact, BTC looks like 416x levered S&P position to me,” writes PlanB.
In his own Twitter thread, crypto trader and analyst Luke Martin, aka Venture Coinist, argued that two risk-on assets can show little-to-no correlation, and that BTC is a proof of that.
“Bitcoin has been uncorrelated almost its entire life,” represented for example by its correlation of 0 on average to the popular S&P 500 stock index over the past 3 years, he says.
However, despite the lack of long-term correlation, Martin suggested that the situation has changed somewhat recently, with an increase in correlation with the stock market seen this year. According to Martin, “the peak” in correlation was seen around March 12 – the day often referred to as crypto’s Black Thursday – when he said all assets seen as “risky” sold off together.
This lack of correlation that bitcoin exhibits means that the cryptocurrency is “incredibly attractive in a portfolio” for investors who seek diversified exposure to a range of assets, claims the analyst.
Meanwhile, some also took to Twitter to comment on Martin’s opinion, with one user arguing that it is institutional investors that have made bitcoin more correlated with stocks this year. “For this correlation to return to 0, institutions will have to view BTC as a risk-off asset, not risk-on. Or they lose interest and go away,” the user wrote.
As reported in April, crypto research firm Coin Metrics said that unless “fundamental” changes occur in bitcoin and/or the S&P 500, the long-term correlation between the two will likely “return to levels of near zero.”
At pixel time, Bitcoin is trading at USD 9,432. It dropped 1.39% in a day and 2.68% in a week.