Correlation between the price of Bitcoin and that of stocks

According to a graph that is circulating a lot on X, the correlation between the price of Bitcoin and technology stocks would have dropped to 0.

NEW: The correlation between #Bitcoin and tech stocks has fallen 0 👀

Is this the Great Decoupling? 🙌 pic.twitter.com/HzeqnZEAHP

— Bitcoin News (@BitcoinNewsCom) December 27, 2023

The source of the graph would be Bloomberg, but it was not possible to verify its origin with certainty.

Summary

• The correlation between the price of Bitcoin and stocks
• The variations
• The difference
• The reasons for the correlation between the price of Bitcoin and stocks

The correlation between the price of Bitcoin and stocks

Note that the graph shows a correlation that has returned to zero after rising to 0.40 in recent months, and that was even below zero in 2019 and early 2020.

Taking the Nasdaq as a reference, it is discovered that in the last 30 days the NDX index has grown by 6%, while the price of BTC has grown by 15%.

So in the last 30 days the correlation between Nasdaq and Bitcoin has certainly not been zero, also because the profile of the two curves is similar.

The situation changes if we also consider the past months, such as October when the Nasdaq lost 2% while Bitcoin gained 28%.

By averaging the last two months, the correlation may indeed appear to be essentially zero, but it becomes positive again when comparing the annual trends of 2023.

This year the Nasdaq has recorded a +54% increase, following last year’s bear market, while BTC is almost at +160%.

The direction of the trend was therefore very similar, but in proportion BTC performed better.

However, this correlation also occurred last year, with the Nasdaq losing almost 30% during 2022 while BTC even lost 64%.

The variations

Indeed, the chart from Bloomberg, which concerns the correlation between the price of Bitcoin and that of technology stocks, clearly shows significant variations over time.

The chart measures the 60-day correlation level and reached a peak of almost 80% just before the middle of last year.

However, the previous year the correlation was less than 40%, while in 2020 it reached several peaks above 50%.

Starting from the end of 2022, however, this correlation has decreased, going from 70% to 5% in less than a year. Then, between July and August of this year, it had risen to almost 40% but only to plummet to zero in the last few months.

Note that currently it would actually be just below zero, and it has been since the beginning of 2020 that it has not dropped below zero.

However, it is possible that it will rise a bit in the coming weeks, because December was a month with a positive correlation, given the similar trends of Nasdaq and BTC.

The difference

The most evident difference, however, is another one.

In fact, in December the Nasdaq reached its new all-time highs, recovering all the losses from last year’s bear market.

Instead, the price of Bitcoin is still down 38% from the November 2021 highs, and this is both because it lost much more in 2022 and because it did not recover much from the end of March to the end of July.

Taking into consideration this period, the Nasdaq from March 6th to July 24th of this year recorded a remarkable +34%, while Bitcoin in the same period stopped at +36%.

Since the losses in 2022 were much greater for BTC, that +36% was not even close to recovering them. Instead, thanks to that +34%, the Nasdaq had already almost recovered all the losses of 2022 by mid-2023.

The difference was probably made mainly by the boom of AI-related stocks, as this boom did not have any positive impact on the price of Bitcoin.

Also note that the complex dynamics of these last two years have been inversely correlated to the Dollar Index in both cases.

The reasons for the correlation between the price of Bitcoin and stocks

The main reason behind the correlation between the price movement of Bitcoin and that of Nasdaq is the risk-on nature of both investments.

In other words, when investors’ propensity towards risk-on assets increases, both interest in stock investments and interest in Bitcoin investments increase.

To tell the truth, even the price of gold has behaved in a similar way in the last two years, with a decline in 2022, although very limited, and a rise in 2023. The price of gold follows different dynamics, as it is considered risk-off, but these dynamics ultimately had similar results.

Moreover, the S&P500 index has had a very similar dynamic to that of the Nasdaq, so it is indeed the US stock market that has moved as a whole in an inversely correlated manner to the Dollar Index.

At this point, with the Nasdaq at its highs, it is conceivable that there could be a retracement, and such a retracement could end up affecting the price of Bitcoin, despite the overall zero correlation of the last two months.

Source