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Analyst: Bitcoin’s Evolving into the Stock Market Hedge Investors Crave

Last Updated March 4, 2021 2:44 PM
Gerelyn Terzo
Last Updated March 4, 2021 2:44 PM

Bitcoin is looking a lot less like the S&P 500 every day. Good thing, too, especially considering the doom-and-gloom pessimists have been peddling about the economy and especially corporate earnings.

Bitcoin’s Stock Market Correlation Plunged This Month

A Fundstrat report reveals  that bitcoin’s correlation to the S&P 500 took a nose dive in April, even as the price of the leading cryptocurrency has returned to bullish territory. This means that the dynamic between bitcoin and the stock market is increasingly an inverse one — when stocks go down, the price of bitcoin goes up. Given the nascent nature of the crypto asset class, its connection to the equity markets continues to evolve, especially during times of economic decline.

Meanwhile, not only are earnings off to a stronger start than expected, but bitcoin is offering diversity and looking more like the safe haven investors knew it to be. All is right with the world.

Bitcoin’s Correlation to S&P 500 Is Negative

Out of all the major asset classes, bitcoin and the S&P 500 are the most negatively correlated. Over the past week alone, this price dynamic between bitcoin and the stock market grew wider, dropping by a whopping 15.7%, according to a Fundstrat report . A negative correlation suggests that investors have a shot at generating returns with bitcoin even when the S&P 500 is in the doldrums.

Satoshi Nakamoto is smiling from somewhere at this:

“When comparing bitcoin to other major asset classes (stocks, bonds, hedge funds, oil, and gold), bitcoin has the highest correlation to gold (12.6%) and the lowest correlation to S&P 500 (-3.2%).”

bitcoin vs s&P 500 and other asset classes
Bitcoin versus other major asset classes. | Source: Fundstrat

Bitcoin is most highly correlated to gold at 12.6% over the last 90-day stretch. Bitcoin is often compared with gold as a store of value, so this relationship makes sense. Meanwhile, the dominant cryptocurrency and the stock market traded more closely together in March, which was when renewed signs of big whale activity in BTC first started to emerge.

Fundstrat Global Advisors Co-Founder Tom Lee explained:

“BTC correlation to S&P 500 has turned negative. Couple that with low volatility everywhere and it partially explains why institutions have been buying crypto recently.”

Tom Lee: S&P 500 Headed to 3,100 in 2019

It’s not that stocks are a bad place to be. First-quarter corporate earnings are off to a running start, thanks to JPMorgan of all companies. Fundstrat’s Tom Lee is predicting a 25% rally for stocks this year. Bitcoin was never meant to be a proxy for the S&P 500 or the Dow for that matter, and Lee is bullish on all of them.

Based on his equities prediction, Lee expects the S&P 500 will surpass 3,100 in 2019 and the Dow will barrel past 30,000. Not to be outdone, the bitcoin price is headed for $14,000, assuming investors finally realize it’s true fair value.

However you look at it, investors are clearly not shunning risk around the world, and regardless of the correlation, cryptocurrency has benefited.