Financial media often point to Bitcoin (BTC)’s correlation with Big Tech. “Bitcoin trades like a tech stock” is a common narrative alongside BTC’s often acute inverse relationship with the US dollar.
But are these correlations set in stone and can they help predict future price movements? Let’s take a closer look at several reports analyzing the relationship between Bitcoin and various asset types.
Bitcoin historical correlations vary by time frame
A report published in October 2022 by the Multidisciplinary Digital Publishing Institute came to several key conclusions regarding Bitcoin’s correlations with traditional financial assets, including:
- The extreme volatility of the bitcoin market means that long-term correlations are stronger than short-term correlations.
- The “positive association between bitcoin and risk assets increases during extreme shocks,” such as during COVID-19.
- Bitcoin can be positively correlated with risky assets and negatively correlated with the US dollar.
- Bitcoin can serve as a hedge against the US dollar.
While some of these points can be countered with more recent price data over the past nine to ten months, such as a significant drop in volatility, there are still lessons to be learned from examining them. In addition, other researchers have delved deeper into the relationship of certain assets to Bitcoin during set periods of time.
Crypto-Specific Stocks
Some crypto-related stocks are more highly correlated with Bitcoin than any other asset on the market. The 90-day correlation coefficient for BTC/MSTR, BTC/COIN, and BTC/RIOT have all remained close to 1 over the past few months. The symbols “BTC/xxxx” indicate the correlation coefficient for each asset compared to Bitcoin.
For MicroStrategy (MSTR), since September 2022, the coefficient has decreased by no less than 0.68. The coefficient for Riot Platforms (RIOT) fell to around 0.75 in June 2023, while Coinbase (COIN) temporarily trended close to 0 in May and June.
COIN, ROIT and MSTR yearly chart with 90-day correlation coefficients versus BTC. Source: TradingView
All of these stocks have outperformed Bitcoin so far this year while showing greater volatility. Investors can use these assets as a proxy for bitcoin, which cannot be bought through a brokerage account.
One reason these three stocks are so closely correlated with Bitcoin has to do with their respective companies’ balance sheets. They all have a significant amount of bitcoin holdings.
As the table below shows, MicroStrategy holds the most shares of any publicly traded company, holding 152,333 Bitcoin. Coinbase is fourth with 10,766 bitcoin; and Riot is in eighth place with 7,094 bitcoin.
Public company bitcoin holdings. Source: CoinGecko
precious metals
When it comes to correlation with commodities and precious metals, silver beats gold, mirroring Bitcoin’s price movements since 2019.
A November 2022 report by CFA Institute’s Jordan Doyle and Urav Soni titled “How Do Cryptocurrencies Correlate With Traditional Asset Classes?” sheds some light on Bitcoin’s most highly correlated assets.
Correlation heatmap for cryptocurrencies and commodities. Source: CFA Institute
According to the report, from October 2019 to October 2022, silver was the commodity most closely correlated with Bitcoin, with a correlation coefficient of 0.26. In comparison, gold’s correlation was only 0.15, possibly reflecting silver’s greater volatility.
The report states:
Silver has the highest correlation, sitting at 0.26 for silver and bitcoin. Bitcoin, the so-called “digital gold”, shows only a weak correlation with the precious metal.
Passive and active equity funds and bonds
When it comes to stocks as a whole and their correlation to Bitcoin, looking at an index or exchange-traded fund is the most common way of comparing. This provides an overview of the asset class in general, rather than focusing on a specific stock, which can be influenced by a number of factors.
As you might expect, growth funds tend to show a stronger correlation with cryptocurrencies, presumably due to their more speculative nature. Above all:
“Growth funds show a stronger correlation to cryptocurrencies than value funds. For example, the correlation coefficient between small-cap growth funds and Bitcoin is 0.41, compared to 0.35 for small-cap value funds and Bitcoin.” 
Correlation Heatmap for Crypto, Stock Funds and Bonds. Source: CFA Institute
In other words, crypto markets as a whole are “weakly sensitive to interest rate dynamics,” which was at least partly responsible for a broad fall in equities in 2022.
Finally, bonds have little to no relation to Bitcoin. Passive bond funds showed a correlation of just 0.11, while active bond funds were just 2 basis points higher at 0.13. All data points refer to the period from October 2019 to October 2022.
Bitcoin’s correlations are not a crystal ball
Due to Bitcoin’s large price swings, all correlations are subject to change at short notice. Still, the data used here provides an accurate picture of the assets most closely associated with Bitcoin in the recent past.
Related Topics: Bitcoin and Correlations: Exploring the Relationship Between BTC, Gold and the Nasdaq
Crypto-specific stocks are likely to continue to show strong correlation due to their Bitcoin holdings, while correlation with commodities and equity funds could quickly change course going forward.
This article does not contain any investment advice or recommendations. Every investment and trading activity involves risk and readers should do their own research in making their decision.
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