Stocks and Bitcoin- Is there a correlation?

Satoshi Nakamoto created Bitcoin to serve as an uncorrelated asset. However, this virtual currency depicts a clear correlation with stocks. And a person doesn’t have to be a technical analysis expert to see this because this digital currency has a glaring correlation with stocks.

In the past, some investors have dumped stocks due to the rising inflation. At the same time, Bitcoin’s price has tumbled. Some people notice this because some Bitcoin promoters claim that the virtual currency defies traditional markets’ movements, moving most of the time upwards despite the stock market’s flows and ebbs.

But, the recent Bitcoin pattern indicates a correlation between this virtual currency and stocks. Thus, the narrative that this digital currency had a close correlation with gold is now on shaky ground.

The basis of this theory was that investors would treat Bitcoin as value storage in case of a market downturn. Thus, Bitcoin would serve the same haven status as gold. But Bitcoin has existing during economic prosperity, especially in advanced economies. That means the world is yet to test this theory.

What Links Bitcoin to Stock Prices
Experts have highlighted several factors that may explain Bitcoin’s correlation to the stock markets. For instance, GameStop started a meme stocks movement that re-emerged in AMC shares, causing waves in the stock trading world.

The digital-savvy investors in the new generation also bridge a gap between stocks and crypto, possibly explaining the increasing correlation of these assets. But another vital factor could be the institutional funds’ inflow to crypto. The uncorrelated argument could hold water when retail investors dominated crypto. However, this is not the case anymore. Ideally, the correlation is inevitable if the two markets have similar participants.

The correlation pattern can also be sensible when digging deeper into the data to company stocks and indexes. Although Bitcoin’s correlation with NASDAQ and S&P 500 is currently low at 0.2, Bitcoin-related companies show a higher correlation. For instance, MicroStrategy is above 0.7, Grayscale’s Bitcoin Trust is above 0.8, and Tesla is about 0.55.

Further analysis of the continuation of this institutional trend means Bitcoin and stock markets correlation will keep increasing with more companies holding Bitcoin on balance sheets. Nevertheless, some experts believe that this will require time to happen.

Some financial experts and investors believe that things can change with the increasing institutional Bitcoin adoption. Today, thousands of publicly traded companies are including Bitcoin on balance sheets. Most institutional investors use Bitcoin to diversify their investment portfolios. What’s more, the world is yet to realize price movements’ convergence.

Bitcoin and Stock Markets Relationship
Some people purchase Bitcoin on platforms like BitQS using fiat money and then use it as an investment tool. After buying this virtual currency, some individuals hold onto it, waiting for prices to increase while others speculate about its value. But an event in the crypto market might affect the stock market and vice versa, especially with the increasing institutional interest in Bitcoin. Essentially, Bitcoin and stock markets have a two-way relationship, meaning the correlation is not causation.

Nevertheless, several forces are still at play in the Bitcoin market. And these factors can influence stock markets globally if the corporate balance sheet values fluctuate. Bitcoin halving, for instance, has links with the price cycles of this virtual currency.

Traders are the primary players in Bitcoin’s market dynamic. Thus, institutional investors’ presence can dampen volatility, though a solid cyclical pattern can override the correlation forces with the other markets.

Externalities like cost and availability of Bitcoin mining equipment, regulatory requirements, and electrical prices affect Bitcoin’s price. Nevertheless, Bitcoin’s correlation to stock markets will likely continue as more institutional investors venture into the crypto world.