Bitcoin is often touted as an uncorrelated asset that can be used to diversify risk in a portfolio. However, this may change according to new data. Reuters reports that since 2020, the correlation between Bitcoin and the S&P 500 index (.SPX) has grown increasingly positive, causing Bitcoin to trend in the stock market. Bitcoin advocates still expect the standard cryptocurrency to grow faster during this period.
According to Reuters, Bitcoin is being tied to the stock market by institutional investors.
Bitcoin has matured over the years and become a more mainstream investment option. This maturity is one of the factors causing the current market volatility in Bitcoin price as reported by Reuters.
In the report, Ben McMillan, chief investment officer at IDX Digital Assets, noted that the inclusion of Bitcoin in increasingly institutional portfolios caused Bitcoin’s current market to crash as the Fed raised interest rates. not much of a surprise.
Now that bitcoin is not held entirely by early adopters, it is in a 60/40 category portfolio. No wonder it started trading more sensitive to interest ratesMcMillan noted.
The report notes that the correlation between the price movements of the S&P 500 index and Bitcoin has been increasing consistently since 2020. The two asset classes showed very little (0.01) correlation during the last tightening cycle. of the Fed for the year 2017-2019. But since then, the correlation has increased to now have a more significant relationship (0.41).
This is just another phase that will grow faster according to Bitcoin proponents.
While it is hard to refute data showing that Bitcoin tracks traditional assets more closely, proponents of the cryptocurrency see it as a necessary stage in the journey to becoming a global unit of account. of Bitcoin. Bitcoin has already begun adoption with retail investors, at institutional adoption, and will eventually be adopted globally. Bitcoin proponent Alex Gladstein noted:
“There will likely come a time when US monetary policy has little to do with Bitcoin price, but we are far from such an era. For now, Bitcoin will react strongly to monetary policy.”