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What are the three assets most correlated with Bitcoin?

The financial media often points out Bitcoin’s (BTC) correlation to big tech. “Bitcoin is trading like a tech stock” is a standard narrative alongside BTC’s often acute inverse-relationship with the United States dollar.

But are these correlations set in stone, and may they be useful for predicting future price moves? Let’s take a more in-depth have a look at several reports analyzing the connection between Bitcoin and various asset types. 

Bitcoin’s historic correlations vary across timeframes

A report published in October 2022 by the Multidisciplinary Digital Publishing Institute arrived at several key conclusions regarding Bitcoin’s correlations with traditional financial assets, including:

  • The extreme volatility of the Bitcoin market signifies that long-term correlations are stronger than short-term correlations;
  • The “positive linkage between Bitcoin and risk assets increases during extreme shocks” reminiscent of COVID-19;
  • Bitcoin might be positively correlated with risk assets and negatively correlated with the US dollar;
  • Bitcoin can function a hedge against the US dollar.

While a few of these points might be countered with newer price data during the last 9 to 10 months, reminiscent of a significant drop in volatility, insight can still be gained from examining them. In addition, other researchers have gone deeper into the connection of specific assets to Bitcoin during set timeframes.

Crypto-specific stocks

A couple of crypto-related equities have been more correlated to Bitcoin than another assets available on the market. The 90-day correlation coefficient for BTC/MSTR, BTC/COIN, and BTC/RIOT have all remained near 1 for the last several months. The symbols “BTC/xxxx” indicate the correlation coefficient for every asset as measured against Bitcoin.

For MSTR, the coefficient has fallen no lower than 0.68 since September 2022. The coefficient for RIOT fell to roughly 0.75 in June 2023, while COIN trended near 0 for a time during May and June. 

COIN, ROIT, and MSTR  year-to-date chart with 90-day correlation coefficients in comparison with BTC. Source: TradingView

All of those stocks have outperformed Bitcoin thus far this 12 months while also showing greater volatility. Investors could also be using these assets as proxies for Bitcoin, which might’t be bought through a brokerage account. 

One reason these three stocks are so closely correlated to Bitcoin has to do with the balance sheet of their respective firms. They all have a considerable amount of Bitcoin holdings.

As seen within the table below, MSTR has probably the most holdings of any public company with 152,333 Bitcoin. COIN is available in 4th place with 10,766 Bitcoin, and RIOT is in eighth place with 7,094 Bitcoin.

Bitcoin holdings by public firms. Source: CoinGecko

Precious metals

When it involves correlation with commodities and precious metals, specifically, silver actually beats gold in mirroring Bitcoin’s price moves since 2019. 

A November 2022 report by Jordan Doyle and Urav Soni of the CFA Institute entitled “How do cryptocurrencies correlate with traditional asset classes?” shed some light on Bitcoin’s most-correlated assets. 

Crypto and Commodities correlation heat map. Source: CFA Institute

Silver has been the commodity most closely-correlated to Bitcoin from October 2019 and to October 2022 with a correlation coefficient of 0.26, in accordance with the report. Gold’s correlation, by comparison, was just 0.15, perhaps on account of silver’s greater volatility.

The report notes:

Silver has the very best correlation, peaking at 0.26 for silver and bitcoin. Bitcoin, the so-called ‘digital gold,’ exhibits only weak correlation with the valuable metal.

Passive and energetic equity funds and bonds

When speaking of stocks as an entire and their correlation to Bitcoin, an index or ETF can be probably the most common approach to make a comparison. This provides an outline of the asset class on the whole quite than zeroing in on one specific stock, which can have any number of things affecting it. 

As is likely to be expected, growth funds are likely to be more correlated with cryptocurrencies, presumably on account of their more speculative nature. Notably:

“Growth funds exhibit a stronger correlation to cryptocurrencies than value funds. The correlation coefficient between small-cap growth funds and bitcoin, as an example, is 0.41, in comparison with 0.35 for small-cap value funds and bitcoin.”

Crypto, equity funds, and bonds correlation heat map. Source: CFA Institute

In other words, crypto markets as an entire are “weakly sensitive to rate of interest dynamics” that were no less than partially accountable for a broad drawdown in equities throughout 2022.

Finally, Bonds bear little to no relationship with Bitcoin. Passive bond funds showed a correlation of just 0.11, while energetic bond funds were just two basis points higher at 0.13. All data points are for the timeframe of October 2019-October 2022.

Bitcoin’s correlations will not be a crystal ball

Due to Bitcoin’s large price swings, all correlations can change at a moment’s notice. Still, the info used here provides an accurate picture of the assets most closely correlated to Bitcoin within the recent past.

Related: Bitcoin and correlations: examining the connection between btc, gold, and the nasdaq

It’s likely that crypto-specific stocks will proceed having a powerful correlation on account of their Bitcoin holdings, while the correlation with commodities and equity funds could quickly change course going forward.

This article doesn’t contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their very own research when making a call.

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