Bitcoin's correlation with gold, ether and equities has declined. Should BTC investors be worried?
The declining correlation between Bitcoin and traditional assets like gold and equities has raised concerns among BTC investors.
The aspiration to position Bitcoin as a digital gold store, comparable to traditional gold, seems distant due to the decreasing correlation. Investoo's analyst, Dan Ashmore, highlighted this concern in a recent blog post, pointing out that cryptocurrency markets experienced a collapse when the correlation between gold and Bitcoin reached its lowest level since the FTX crash in November.
The diminishing correlation is evident when examining the more volatile 30-day Pearson correlation statistic, which has turned almost entirely negative over the past 30 days, a level not seen in over two years. This trend is particularly notable when observing the correlation between Bitcoin and ether, the two largest cryptocurrencies by market capitalization. The statistical relationship between the price changes of these two digital assets is now at its lowest position since 2021.
The decline in correlation with traditional assets like gold and equities has been preceded by a period of turbulence in the cryptocurrency markets, triggered in part by the SEC filing lawsuits against major exchanges, Binance and Coinbase, in the first week of June.
This disconnection between gold and Bitcoin also calls into question the theory that Bitcoin has achieved its "hedge" status, which gained traction in some circles when the asset surged amid bank fluctuations in March. The historical decorrelation between Bitcoin and common stocks is also significant, as the current de-correlation stands out as one of the biggest outliers to date.
When analyzing the performance of Bitcoin against stocks over the past month, the divergence becomes strikingly evident. While Bitcoin experienced a 9% decline, reaching a three-month low, the Nasdaq Composite Index rose by 10% over the same period, hitting a 14-month high. This divergence is particularly notable when considering the historical environment and the typical relationship between Bitcoin and traditional financial assets.
In recent times, Bitcoin has shown bullish sentiment, as evidenced by its trading price of $30,268 with a 1.10% increase in a single day. Prominent traders, such as Mustache and Titan from Crypto, have also identified a potential BTC price breakout in their recent analyses on social media.
As the CEO, we must closely monitor the evolving correlation dynamics between Bitcoin and traditional assets, as well as its impact on the cryptocurrency market. The decreasing correlation may indicate a shift in the market's perception of Bitcoin's role and utility, which could affect investor sentiment and trading behavior. It is essential to adapt our strategies and remain agile in response to changing market conditions. Emphasizing our commitment to transparency, innovation, and customer-centric services will be key to navigating the complexities of the cryptocurrency landscape successfully.