Bitcoin / Source: Adobe
Bitcoin (BTC) is currently undervalued compared to the S&P 500.
That’s according to a metric that performs an OLS (Ordinary Least Squares) regression of the relationship between Bitcoin and the S&P 500 over the past 200 days to estimate the fair value of Bitcoin’s price based on the current S&P 500 price .
This method (an OLS regression of Bitcoin and S&P 500 prices over the past 200 days) gives a fair value of 27,550 for BTC.
At its current price, which is almost exactly $1,000 below $26,000, Bitcoin is currently undervalued by about 3.7% compared to this fair value estimate.
This is the largest undervaluation Bitcoin has seen relative to its 200-day OLS regression-derived fair value versus the S&P 500 since mid-February.
Bitcoin and US stocks, particularly growth stocks, have historically exhibited a close trade correlation, with analysts viewing both as speculative risk assets sensitive to changes in interest rates.
US stock markets have been propelled higher in recent weeks by a surge in big tech stocks as optimism mounted over the possibility that rapidly developing artificial intelligence (AI) technology will significantly boost productivity and profits.
Thanks to the historical correlation between Bitcoin and stocks, the more Bitcoin rallies while the former stagnates, the more room there is for a Bitcoin “catch-up rally”.
Bitcoin last changed hands nearly 15% lower than yearly highs of $31,000 in April, while the S&P 500 tested yearly highs of just under $4,300 on Thursday.
A weaker correlation limits the prospect of a Bitcoin catch-up rally
However, the argument for a Bitcoin catch-up rally against the booming stock market is not quite as strong as it was a few months ago.
Because while the correlation between the S&P 500 and Bitcoin price is still positive, it has weakened significantly over the past 12 months.
Around this time last year, the 60-day Pearson correlation between Bitcoin and the S&P 500 was above 0.6, according to data from CoinMetrics.io.
It was now down to around 0.14 on June 6th.
Much of the weakening of the correlation between the two asset classes happened in March, when a mini-bank crisis rattled sentiment in the stock sector, but provided bitcoin with some safe-haven demand.
March’s price action was a sign that investors are finally seeing Bitcoin the way its longtime proponents have always wanted it to be — as a decentralized and secure alternative to the current fiat-based monetary system.
While bitcoin’s correlation with the S&P 500 has weakened recently as investors treat the asset more like a safe haven for hard money like gold, bitcoin’s correlation with gold has increased.
Bitcoin’s 60-day Pearson correlation with Paxful’s tokenized gold version (PAXG), which closely tracks spot gold prices, was last seen at around 0.22, having recently hit a yearly high of over 0.3.
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