Published: June 28th, 2023
New research from crypto analytics firm Kaiko shows that Bitcoin’s correlation to the tech-centric Nasdaq 100 index has dropped to its lowest point in three years. That could mean a long-term de-coupling is underway, even as the number one cryptocurrency reached its highest correlation with gold in several years.
In a report published this week, Kaiko said that the Nasdaq 100 / BTC correlation dropped to just 3 per cent. The index tracks the performance of the most actively-traded (and largest) non-financial-services firms listed on the Nasdaq exchange.
Kaiko analysts noted that the index's correlation with traditional risk assets has also softened steadily in 2023, dropping from an average of 60 per cent last year (2022). At the same time, Kaiko said that the Nasdaq 100 is now in bull market territory, up more than 20 per cent over lows hit in December 2022.
Kaiko points to Bitcoin’s susceptibility to ‘crypto-specific events’ such as the regulatory response to the FTX scandal. Tech stocks have felt some of the heat, but not to the same degree.
Analysts also said that a growing gap in volatility between tech stocks and crypto valuations had reached a high point following the FTX collapse.
In a separate report, Kaiko said that Bitcoin and gold have gone in the opposite direction, strengthening their correlation to above 50 per cent. While the precious metal has seen declines in June 2023, for the year-to-date it is up, USD 1,914 at time of writing, which puts it very close to its USD 2,000 all-time high
Bitcoin has been basking in a rally induced by the recent BlackRock ETF announcement, pushing past USD 31,000 last week.
In Autumn 2022, BTC’s gold correlation provided crypto traders with compelling evidence that investors had begun to view Bitcoin as a safe haven asset.
Following a stretch of market correlation between BTC and gold, analysts at Bank of America Securities (BofAS) published a report saying that the world’s number one cryptocurrency had been tracking gold prices for an extended period, strongly indicating that investors were using it as a hedge against broader market volatility.
To be considered a safe haven, a financial asset must be able to shield portfolios from steep losses during an economic downturn. That requires them to be uncorrelated or negatively correlated to trends in the wider economy. Gold has traditionally played this role, providing a sturdy store of value in times of trouble.
The relationship between BTC and gold has historically been used to measure investor confidence in Bitcoin’s store-of-value credibility. Both moved broadly in parallel between June 2021 and March 2022.
If two or more assets demonstrate a positive correlation, they can be assumed to be responding to the same market stimuli. If they demonstrate a negative correlation, then the opposite is likely true.
At the end of August, the relationship between gold and BTC returned to positive, while in early October the correlation wound even tighter, touching the highest point in twelve months.
Within that period, Bitcoin’s relationship to the S&P 500 and Nasdaq 100 indices of blue-chip equities also reached all-time highs, though BoAS analysts say that correlation had begun to slip.
'A slowing positive correlation with blue chip stocks and a quickly rising correlation with gold tells us that investors have started looking at bitcoin as a relative safe haven to shield portfolios from macro uncertainty and wait for the market bottom to materialise.’
In October 2022, Kaiko data showed that Bitcoin had become more stable than both the Nasdaq and S&P 500 for the first time since 2020.
That month had otherwise been uneventful for BTC, which was up just 1.1 per cent over the previous 30 days.
While crypto as an asset class has a well-earned reputation for volatility, Bitcoin has been displaying longer and longer periods of relative calm.
A previous Kaiko report in October 2022 found that BTC's 20-day volatility had followed the peaks and troughs of the Nasdaq stock index for the first time in nearly two years. While Bitcoin’s price had been more or less the same since the beginning of September 2022, both the Nasdaq and the S&P 500 dropped by around 11 per cent through the same period.
Bitcoin’s price has historically been correlated with technology stocks, though with a higher propensity for volatility than other assets. Despite the impressive gains posted in 2021, its high beta rating had previously kept many investors from relying on it as safe-haven asset.
Its price did fall back to lows last seen in 2020 in the first week of October, after core US inflation topped another 40-year high. Both BTC and stick prices fell on the news before returning to their previous ranges.
BTC did experience a significant drop in June 2022 after release of American consumer price index (CPI) data for May, which showed core inflation rising at a worrying rate of at 8.7 per cent. Investors took it as a signal that the Fed wouldn’t be altering its aggressive monetary policy course any time soon, prompting a risk-off move away from volatile assets.
However, while high inflation held firm for months, crypto’s price action didn’t shift notably with subsequent CPI prints. Stocks, on the other hand, were in a slow-but-steady decline.
Analysts said that if Bitcoin really had moved into stable mode, it would mark a significant change in the way markets perceive the asset class, especially given against the hawkish stance taken by central banks worldwide, which had turned many bonds into an opportunity for rapid gains. As Reuters reported in September 2022, Fed policy has sent bond yields skyrocketing.
Analysts at Bloomberg noted that treasury market volatility had been much higher than Bitcoin volatility in the third quarter of 2022. At the time, volatility in stock prices hit all-time highs when compared to price moves for Bitcoin.