Bitcoin’s Correlation with US Stocks and Ether is Weakening

Bitcoin (BTC), the largest cryptocurrency by market cap, is currently trading around $92,000, up over 115 percent since the beginning of the year. The overall cryptocurrency market has surpassed $3.025 trillion, an all-time high in terms of transaction volume.

Generally, the market perceives bitcoin as a risky asset. The higher the risk rating of the asset, the further outside the risk curve the asset is.

According to Glassnode data, bitcoin has recorded an implied volatility of approximately 60% in the last 30 days. However, it is important to remember that the cryptocurrency is down over 100% in 2021.

Since Bitcoin is considered a risk asset, it has a high correlation with US stocks, which are considered a different type of risk asset, but still stocks are not as close to the risk curve as bitcoin.

Looking at TradingView data on a 30-day correlation basis, bitcoin has experienced periods of 1:1 correlation with the Nasdaq Composite over the last five years.

This trend continued until the first half of 2024, when bitcoin broke its all-time high and rose above $73,000 in March. But while the Nasdaq has continued to make all-time highs since March, bitcoin has consolidated between $50,000 and $70,000. Since Donald Trump won the US elections on November 6, Bitcoin has continued to rise while the Nasdaq has stagnated.

The current 30-day correlation between the two assets is currently 0.46, one of the lowest levels recorded in the last five years. In September, a negative correlation close to -0.50 was observed.

Nasdaq and five-day-a-week bitcoin CME futures have fallen or risen together over 222 trading days of 2024, according to data from Investing.com. That’s 52% of the year so far.

Fidelity’s chart on the left shows the last five years of sharpe rates for major asset classes. The Sharpe ratio compares the return on investments with their potential risk. According to the data, bitcoin stands out as the best asset class in terms of risk-based performance.

The second chart shows the relationship of these assets with S&P. Bitcoin’s correlation with SPX is 19%, which is quite low.

The data shows that we start to see a divergence in the correlation between bitcoin and Nasdaq, especially in the second half of 2024.

The fact that Bitcoin has grown as an asset class and is now the seventh largest asset by market cap is allowing the market to adapt to the asset and expect it to trade independently.

This is also true between bitcoin and ether (ETH), the two largest cryptocurrencies by market value. The correlation of ether and bitcoin, which has maintained a 1:1 ratio since 2019, broke down during the bull market in 2021, when bitcoin stagnated.

Currently, looking at the 30-day correlation, they have a correlation of 0.35, which is the second lowest level ever recorded. Expectations are that the old correlation level may be reached as the market adapts further to these two assets.