Bitcoin and US stocks: strong correlation
There is a high correlation between US stock indices and the price of Bitcoin.
Before 2017, the correlation coefficient between Bitcoin and the Nasdaq and S&P 500 indices was relatively low: about 0.6996 and 0.7217, respectively (using the coefficient Pearson correlations).
By the end of 2017, both graphs almost simultaneously reached their maximum, and at the end of 2021 they again almost simultaneously reached the highest values for the period under review, and then simultaneously fell and rose again.
After 2017, the connection between Bitcoin and the Nasdaq and S&P 500 indices became much stronger: the correlation coefficient was about 0.8528 and 0.8787, respectively. The connection between the price of Bitcoin and US stocks is gradually strengthening.
Bitcoin and gold: moderate correlation
< p>Until 2016, gold prices gradually declined, while Bitcoin slowly grew. In 2018, both assets reached their peak values. In August 2020, the price of gold peaked and began to decline, while the price of Bitcoin surged, starting a new bull market period.
Since the beginning of 2022, both assets have started to rise again after falling, showing a similar trend.
Before 2017, the correlation coefficient between the prices of Bitcoin and gold was -0.6202, indicating an inverse relationship between them. Since 2017, this coefficient has been 0.6889, indicating a moderate linear relationship.
Bitcoin and US bond yields: weak negative correlation
Like gold, US bonds are typical hedging instruments.
Both 10-year and two-year bond yields are poorly correlated with at the price of Bitcoin. This is especially noticeable for two-year US bonds: yields in 2020 and 2021 were extremely low, but the price of Bitcoin continued to rise. After 2017, the correlation coefficients between Bitcoin and 10-year and 2-year US bonds were -0.1382 and -0.1756, respectively, indicating that there is no strong relationship between these assets.
Bitcoin and Commodity Price Index: Moderately High Correlation
Commodity prices are influenced by many factors, but in general they can reflect global macroeconomic cycles. There is a high correlation between them and BTC: both began an extended ascent after the lows in the first half of 2020, peaked almost simultaneously in November 2021, and began a synchronized decline. Since 2017, the correlation coefficient has been 0.7184, which indicates a fairly strong connection between them.
Conclusion
BTC correlates most strongly with US stocks, then with commodity prices, gold, and least correlates with US bonds. Therefore, BTC can be considered a high-risk asset.
Fluctuations in the prices of financial instruments depend on two factors: changes in its main fundamental characteristics and changes in the desires of market participants for risk. As the global economy strengthens and commodity prices rise, this increases interest in risk assets, including BTC and stocks. With the stability of the American economy and the rise of artificial intelligence, which will be a key driver of productivity gains in the coming decades, it will be easier to lower interest rates to provide more liquidity. All this, in turn, will increase interest in risky investments. In this context, the price of BTC, like other risky assets, may show positive dynamics.
