- Bitcoin’s correlation with stocks experienced a downward trend after the COVID era.
- BlackRock recommended limiting the risk of the King Coin to 1% to 3% for risk management reasons.
Bitcoin [BTC] has always been a bit of a mystery. Sometimes it behaves like a risky tech stock and other times it moves with a mind of its own.
In 2023, it appeared to follow the stock market, but that changed in November as its connection to stocks weakened. However, recently BTC has seemed more tied to stocks.
Robert Mitchnick, head of digital assets at BlackRock, noted this in his speech at the Bitcoin Investor Day conference in New York City:
“Historically, Bitcoin’s long-term average correlation is [to stocks] was close to zero – slightly positive, but close to zero.”
He further added:
“There were periods when there were peaks, similar to gold…. In fact, when you put their correlation plots in a time series, they look remarkably similar.”
Who is behind the rise of Bitcoin?
From 2020 to 2022, Bitcoin and US stocks often performed in parallel, with financial institutions treating the former more like growth stocks.
However, last year this correlation decreased due to several bankruptcies in the crypto space, which deterred speculators.
Now, the correlation between stocks and cryptocurrencies is predicted to increase again, especially with the launch of Bitcoin exchange-traded funds (ETFs) that are attracting more institutional investors.
Eric Chen, CEO and co-founder of Injective Labs, noted:
“Once the entire crypto space reaches a certain level of value, it will of course become part of the portfolio of some large funds.”
While some executives see ETFs as the driving force behind Bitcoin's rise, others compare it to the broader macro-driven rally seen in gold prices.
Mitchnick emphasized the same thing, stating:
“Bitcoin has a fundamental macro variable that is highly correlated with stocks: it is massively short real interest rates and long inflation expectations.”
Given the growing speculation, BlackRock suggested capping Bitcoin exposure at 1% to 3% for effective risk management.
The return of Bitcoin
In summary, despite fluctuations in BlackRock's Bitcoin ETF inflows, Bitcoin has surpassed $70,000, reflecting continued market optimism.
The significant accumulation of Bitcoin by key investors totaling over 51,959 BTC (according to Santiment) in a single day highlights this positive sentiment.
However, prioritizing liquidity in stablecoins like Tether remains crucial [USDT] and USD coin [USDC] to maintain trading activity.
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