Well, does this correlation exist or not?
According to the most recent empirical evidence, the answer is negative.
PlanB, the creator of Bitcoin’s stock-to-flow (S2F) model, goes even further, believing that Bitcoin and shares have never actually been two related activities. The real answers on the stock markets, you know, however, always come in times of stress and crisis, such as a financial crisis, or the Covid-19 pandemic, and the data that PlanB has provided show that Bitcoin “is not a related asset” to the stock market. More precisely, again according to PlanB, Bitcoin has been “uncorrelated” with stock markets for almost its entire life, with a correlation index that has always been close to zero, on average, with the popular S&P 500 stock index used as a proxy to measure the performance of the stock markets.
However, despite the lack of long-term correlation, the situation has changed somewhat recently, due to the increase in correlation with the stock market that was observed in the first half of this year. Again according to PlanB data, the “peak” of correlation was recorded around March 12, the day often indicated by market operators as the Black Thursday of cryptocurrencies, the day on which all the assets considered “risky” were sold in mass, simultaneously.
Is Bitcoin Related Or Not With Stock Markets?
The lack of correlation with the stock markets that Bitcoin shows, we said, makes the cryptocurrency particularly attractive in the portfolio of investors seeking diversified exposure to their portfolio.
Some analysts say that large institutional investors have made Bitcoin more correlated with equities over the course of this year. In order for this correlation to return to near zero, these investors will therefore have to consider BTC as a risk-off and not a risk-on asset. Otherwise, they will lose interest in Bitcoin and leave the market.
In April, the cryptoasset research firm Coin Metrics demonstrated how, unless fundamental changes occur in Bitcoin and / or the S&P 500 index, the long-term correlation between the two activities “will probably return to close levels. to zero “. If so, investors would have further confirmation that Bitcoin can truly be an asset to hold in the portfolio to diversify its risk. Difficult to quantify the exact percentage in which Bitcoin should still be present in the wallet. Many analysts claim that this should not be more than 1-2%. Of course, to have an empirical feedback on this theory too, it will be necessary to wait a long time.