As giants step up their efforts to enter the Bitcoin market, Bitcoin's financial asset attributes are becoming stronger. Although Bitcoin is considered an independent asset with its own price trend, as Bitcoin further becomes an important part of the global financial system, its correlation with traditional assets will inevitably increase.
We have explored the correlation between Bitcoin and risky assets (U.S. stocks), safe-haven assets (U.S. bonds and gold), and the global macroeconomic cycle (commodity index) over a period of more than ten years from 2012 to the present. We have taken the successful breakthrough and stabilization of Bitcoin prices at $1,000 as the dividing point, and focused on analyzing the correlation between Bitcoin and other assets after 2017.
In its early stages, Bitcoin went through a period of exploration and imitation. This was because when Bitcoin first appeared, people did not quite understand its nature and potential. The value and use of Bitcoin were not clear at this stage, and mainstream investors and institutions were cautious about it.
However, as time went on, Bitcoin's decentralization and fixed supply cap attracted more and more attention and trust, which gradually established Bitcoin and eventually won mainstream recognition. Especially since 2017, Bitcoin prices have shown an increasingly strong correlation with four traditional assets, including U.S. stocks, U.S. bonds, gold, and commodities.
From groping and uncertainty to clear positioning and maturity, Bitcoin's evolution over the past decade has not only witnessed the curvilinear growth of its price, but also its increasingly prominent position in the global asset market.
It can be clearly seen from the figure that the US stock index has a high correlation with the price trend of Bitcoin. We use the year 2017 when the price of Bitcoin exceeded $1,000 as the boundary. According to calculations, before 2017, the correlation coefficients between Bitcoin and Nasdaq and S&P 500 were 0.6996 and 0.7217 (Pearson correlation coefficient), respectively.
The two reached their peaks almost simultaneously near the end of 2017, and reached their highest points in the statistical period almost simultaneously near the end of 2021, and then fell and rebounded simultaneously. After 2017, the correlation coefficients between Bitcoin and Nasdaq and S&P 500 were 0.8528 and 0.8787 (Pearson correlation coefficient), respectively. By comparing the two, it can be found that the correlation between Bitcoin and US stocks has gradually strengthened. After 2017, the correlation coefficients were all greater than 0.8, which is a strong correlation.
We choose London spot gold (XAU) as an anchor for gold price trend analysis. Gold is a typical safe-haven asset. As can be seen from the figure, before 2016, the price of gold was gradually decreasing, but the price of Bitcoin was slowly rising. Subsequently, the two trends showed convergence. In 2018, both reached their stage highs. In August 2020, the price of gold reached its highest point and then fell back, but the price of Bitcoin rose rapidly afterwards and entered a bull market. The peak of Bitcoin price happened to be the stage trough of gold price (2021). But after November 2022, both bottomed out and rebounded at the same time, showing consistency in trend.
Similarly, we chose 2017 as the watershed. Before 2017, the correlation coefficient between the two was -0.6202, which was a relatively obvious negative correlation trend; after 2017, the correlation coefficient between the two was 0.6889 (Pearson correlation coefficient), which was a moderate linear correlation.
We selected the most representative 10-year and 2-year U.S. Treasury bonds, and roughly considered them to represent the medium- and long-term risk-free interest rates and the medium- and short-term risk-free interest rates, respectively. U.S. Treasury bonds, like gold, are typical safe-haven assets. As can be seen from the figure, whether it is a 10-year or a 2-year bond, the yields show a poor correlation with the price of Bitcoin. Especially for the two-year U.S. Treasury bonds, the yields of 20 and 21 years are extremely low, but the price of Bitcoin has been rising all the way. Examining the correlation between the two after 2017, the correlation coefficients between Bitcoin and the 10-year U.S. Treasury bonds and the two-year U.S. Treasury bonds are -0.1382 and -0.1756 (Pearson correlation coefficient), respectively, which belong to the category of low correlation, and the two are negatively correlated.
Commodity prices are affected by many factors, but they can roughly reflect the global macroeconomic cycle. As can be seen from the figure, the two are highly correlated. Both rebounded after bottoming out in the first half of 2020 and continued to rise. They reached their highest point almost at the same time in November 2021, and finally began to fall synchronously. The correlation test shows that the correlation coefficient between the two after 2017 is 0.7184 (Pearson correlation coefficient), which is medium to high correlation.
According to the above calculations and analysis, after 2017, the ranking of Bitcoin's correlation with other assets is "U.S. stocks > commodities > gold > U.S. bonds". It has a high correlation with risky assets and macroeconomics, but a low correlation with safe-haven assets. Therefore, we can consider Bitcoin to be a risky asset.
Fundamentally, the price change of a financial product is affected by two aspects: fundamental changes and market risk appetite. When the global economy improves, that is, commodity prices rise, market risk appetite naturally increases, so Bitcoin also rises along with other risky assets such as US stocks. The recent continued strength of the US economy, coupled with the widespread application of large AI models, will become the main driving force for productivity improvement in the next 10 to 20 years. With the improvement of productivity, interest rate cuts will also make it easier to accommodate more liquidity. Therefore, we have reason to believe that the risk appetite of global investors will gradually increase, and more investment funds will flow into the market, and the price of Bitcoin will most likely perform well.
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