With the giants stepping up their involvement in Bitcoin, Bitcoin’s financial asset properties are becoming stronger. Although Bitcoin is considered an independent asset with its own price trend, as Bitcoin becomes an increasingly important part of the global financial system, its correlation with traditional assets will inevitably increase.
From the perspective of more than ten years from 2012 to the present, we explore the correlation between Bitcoin and risk assets (US stocks), safe-haven assets (US bonds and gold), and the global macroeconomic cycle (commodity index), with a focus on analyzing the correlation between Bitcoin and other assets after Bitcoin successfully broke through and stabilized at $1,000.
In the early stages, Bitcoin went through a period of exploration and imitation. This was because when Bitcoin first appeared, people did not understand its nature and potential well, and the value and uses of Bitcoin were not clear in this stage. Mainstream investors and institutions were cautious about it.
However, over time, the characteristics of Bitcoin, such as decentralization and fixed supply limit, attracted more attention and trust, gradually shaping Bitcoin and eventually gaining mainstream recognition. Especially since 2017, the correlation between Bitcoin’s price and four traditional assets, including US stocks, US bonds, gold, and commodities, has become stronger and stronger.
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From the stage of exploration and indeterminacy to clear positioning and maturity, the evolution process of Bitcoin over the past decade has not only witnessed the curve growth of its price but also its increasingly prominent position in the global asset market.
From the graphs, it can be seen clearly that the correlation between the US stock index and Bitcoin’s price trend is relatively high. Taking the year 2017 when Bitcoin’s price broke through $1,000 as a boundary, the correlation coefficients between Bitcoin and the Nasdaq and S&P 500 before 2017 were 0.6996 and 0.7217, respectively (Pearson correlation coefficient).
Both reached near-synchronous phase highs around the end of 2017, and near-synchronous highs within the statistical time frame around the end of 2021, followed by synchronous declines and rebounds. After 2017, the correlation coefficients between Bitcoin and the Nasdaq and S&P 500 were 0.8528 and 0.8787, respectively (Pearson correlation coefficient). A comparison between the two shows that the correlation between Bitcoin and US stocks is gradually strengthening. The correlation coefficients after 2017 are all greater than 0.8, indicating a strong correlation.
We choose London spot gold (XAU) as an anchor for analyzing the trend of gold prices. Gold is a typical safe-haven asset. From the graph, it can be seen that before 2016, the price of gold was gradually decreasing, while the price of Bitcoin was slowly rising. Then, the two trends showed convergence, and in 2018, both reached phase highs. In August 2020, the price of gold reached its highest point and then fell back, but the price of Bitcoin quickly rose afterward, entering a bull market. The peak of Bitcoin’s price coincided with a phase low of the price of gold (2021). However, after November 2022, both reached a bottom and rebounded simultaneously, showing consistency in their trends.
Similarly, we choose 2017 as a watershed. Before 2017, the correlation coefficient between the two was -0.6202, indicating a clear negative correlation trend. After 2017, the correlation coefficient between the two is 0.6889 (Pearson correlation coefficient), indicating a moderate linear correlation.
We chose the most representative US 10-year and 2-year Treasury bonds, which are approximately considered to represent long-term risk-free interest rates and short- to medium-term risk-free interest rates, respectively. Like gold, US Treasury bonds are typical safe-haven assets. From the graph, both the 10-year and 2-year yields show a relatively poor correlation with the price of Bitcoin. Especially for the 2-year US Treasury bond, the yields were very low in 2020 and 2021, but the price of Bitcoin continued to rise. The correlation coefficient between Bitcoin and the 10-year and 2-year US Treasury bonds after 2017 is -0.1382 and -0.1756 (Pearson correlation coefficient), indicating a low correlation and a negative correlation.
The prices of commodities are influenced by many factors, but they roughly reflect the global macroeconomic cycle. From the graph, we can see that the correlation between the two is high. Both prices continued to rise after a bottoming rebound in the first half of 2020 and reached their highest points almost simultaneously in November 2021, and finally started to fall in sync. The correlation coefficient between the two after 2017 is 0.7184 (Pearson correlation coefficient), indicating a medium-high correlation.
Based on the above calculations and analysis, after 2017, the ranking of Bitcoin’s correlation with other assets is “US stocks > commodities > gold > US Treasury bonds.” It has a high correlation with risk assets and the macroeconomy, but a low correlation with safe-haven assets. Therefore, we can consider Bitcoin as a risky asset.
Fundamentally, the price movement of a financial product is influenced by two factors: changes in fundamentals and market risk preferences. When the global economy improves, i.e., when commodity prices rise, market risk preferences naturally increase, and Bitcoin, like other risk assets such as US stocks, also rises. In the recent period, the US economy has remained strong, and with the widespread application of AI models, it will become the main driving force for productivity improvement in the next 10 to 20 years. With the increase in productivity, interest rate cuts can also accommodate more liquidity. Therefore, we have reason to believe that global investors’ risk preferences will gradually increase, and there will be more investment funds flowing into the market, which will likely lead to an increase in the price of Bitcoin.